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While many people turn to credit to help manage their finances from time to time, for some it's a necessity, and research from Momentum has found that it's a particular problem among the younger age groups.
Indeed, many of those who rely on credit could find themselves in financial difficulty as a result, with the latest Momentum UK Household Financial Wellness Index raising clear concerns about an overreliance on credit among the millennial generation (those aged 16-34).
The research found that 31% of 16-34 year olds rely on credit to assist their money management, yet 36% of them have been unable to meet the minimum repayments at least once in the last year, and 19% have been unable to pay one or more bills at final reminder over the same period.
Overall, 17% of young people have a credit or store card that they use on a regular basis, and without being suitably organised to manage those commitments effectively, it could lead to damaged credit scores as well as expensive late payment charges.
Poor money management
Perhaps unsurprisingly given the results, the Index also found that young people tend to have the poorest organisational skills of any age group when it comes to their finances. For example, 24% don't keep track of their day-to-day spending, and a similar number (21%) have no formal budget in place to keep an eye on their costs.
Not only that, but 53% of those questioned would struggle to fund an unexpected expense without borrowing money, which could help explain the prevalence of debt among this age group. Unfortunately, such poor money management is also having a notable impact on the financial wellness of this generation, with 63% having no savings or investments and a further 28% having less than £100 set aside. As a result, 18% have no confidence in either their short or long-term finances.
Ferdi Van Heerden, CEO of Momentum UK, said that the "overreliance on credit among millennials is a real cause for concern, particularly when you consider the punishing rates often imposed on younger people accessing credit… We must ensure that young people know [how to use these methods] responsibly, or we run the risk of yet another generation feeling the consequences of living beyond its means."
Unfortunately, it may not be that simple, with additional figures from the Money Advice Service finding that many workers find it difficult to make their wages last to the end of the month – which could further explain the reliance on credit to make ends meet.
The research found that 33% of workers surveyed struggle to make their money last either most months or every month, with 12% saying that their wages run out within just 10 days of being paid.
For many people, bills are to blame, with 42% saying that they simply don't have much money left once they've paid the bills, and as a result could find it difficult to reign in their expenditure as the month goes on. However, others are a bit too reckless with the whole thing: 20% admit to having post-payday spending sprees, and although a blowout may seem tempting, having to struggle for the rest of the month won't be so welcome.
Additional results echo those of Momentum UK, with those who run out of money often turning to credit or store cards (25%), savings (26%) or overdrafts (19%) to survive the month – and of those who turn to credit, 41% end up maxing out their credit cards ahead of the next payday.
Get back in control
While credit can be seen as a lifesaver in some situations, it shouldn't be used recklessly. If you're finding that you're bringing out the plastic a little too often, start by seeing where some slight improvements to your financial management can be made – forego that daily store-bought coffee, for example, or try to resist the lure of the post-payday shopping spree, and you may make it to the end of the month in better financial shape.
However, if you're already locked in the credit cycle, all is not lost. Make sure you're not worsening matters by paying at least the minimum payment each month – set up calendar alerts as extra reminders – and if you can, try to pay more than the minimum to pay the balance down sooner. If you're paying extortionate interest rates it could be time to consider a balance transfer credit card, as that way, you can pay off your debt without interest adding to your problems.
Open a savings account and start building a financial buffer so you're not forced to turn to credit should an emergency hit
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