Gen Xers managing a disproportionate amount
of credit card debt
By Lucy Lazarony • Bankrate.com

They went from school to a good job without a hitch. They have the big pay, the shiny sports utility vehicle and a thick wad of credit card debt.

The so-called Generation X -- people aged 22 to 33 -- account for only 18 percent of America's credit card holders, but they contribute 25 percent to its outstanding card debt, according to a national survey by PSI Global, a market research firm in Tampa, Fla.

Gen Xers have more than their share
Gen Xers may own a disproportionate amount of the debt, but they exhibit some sophistication in handling it. Realizing that a $3,000 balance on a card with an 18 percent interest rate can't be a good thing, they jump from teaser rate to teaser rate to keep the finance charges on big balances as low as possible.

"They're smart enough to know the lower the rate, the less they pay," said Mark Queen, a vice president at PSI Global. "They're rate shoppers."

And Queen said many Gen Xers are well aware that too much card hopping could cause them problems when they try to get a loan down the road. Lenders view any open credit lines as potential outstanding debt. Someone with a $3,000 balance on $40,000 worth of credit cards will find potential lenders looking at that other $37,000.

Canceling old cards after transferring balances under a new, low-interest offer helps prevent unused credit lines from piling up.

Generous unpaid balances
Sixty percent of Gen Xers carry balances from month to month compared with an industry average of 46 percent. And the typical unpaid balance in a Gen X household is $3,128 a month, 28 percent higher than the industry average of $2,438.

"It's just a lifestyle issue. It's a habit people get into," said Sharon Cabeen, director of education for Consumer Credit Counseling Service in Atlanta. "It's very easy, once you have a credit card, to use it to furnish the apartment and to do the other things you want to do."

And Gen Xers learned the plastic habit early -- many in their late teens.

"Kids are starting with credit cards the first day they arrive on the college campus," Cabeen said. "They're inundated with offers early."

Holdover debt
Some of the debt Gen Xers carry is leftover from their student days.

The average undergraduate has $2,200 in credit card debt, according to Nellie Mae, the nation's largest maker of student loans. That figure jumps to $5,800 for graduate students.

Credit cards also come in handy for unexpected expenses such as car repairs. On top of that, there's a high number of starting-out expenses for people in their 20s and 30s: The first professional wardrobe, the first camelback sofa.

And then there's all the fun stuff, which experts say accounts for a big chunk of Gen Xers' plastic debt.

"Usually it's pure consumption: travel, clothes, having fun, going out," said Mari Adam, a certified financial planner in Fort Lauderdale, Fla. "I think part of it is, at that age, they don't realize how hard it is to pay off debt."

Compounding works both ways
Of course the best way to combat credit card debt is to pay it down. Even an extra $50 a month can make a difference. But that's advice many Gen Xers don't want to hear.

Adam said some of her clients who are in their 20s and 30s don't even want to own up to the fact that they have credit card debt.

And, when they're found out, they'd much rather talk about investing, and nabbing the biggest return than take a close look at how much of their money has been swept away by credit card finance charges.

"They don't realize compounding works both ways. It makes you rich when you're investing and it makes you poor when you're spending," Adam said.

"I know people don't want to hear it. When you're young, you're invincible."

-- Posted: Oct. 19, 1998