4 things young Americans should know about credit cards in 2022
The new year is here, and it is traditionally the time for new beginnings. You probably have a lot of exciting or anxiety-provoking things, whether your New Years Resolutions include using up your gym membership or meeting career goals.
Credit cards in your wallet are probably far from the first thing on your mind. However, credit card trends in 2022 can have a big impact on your financial health. What you do (or don’t do) with your credit cards in the New Year can make a significant difference in your budget and even your lifestyle.
Don’t worry, I’m not about to send you on a research mission to find what 2022 has in store for credit cards. Read on to find out what to expect from the card landscape and how to prepare your wallet.
What you need to know about credit cards in 2022
Your credit card debt can get more expensive
53% of Gen Z (16-25) and 41% of Millennials (26-41) with credit card debt don’t know their interest rates, according to a new Bankrate survey.
To be fair, I also don’t know the APRs of my cards, but I don’t have any balances either. I avoid them at all costs.
Credit card debt is insanely expensive and poised to get even more so thanks to the Federal Reserve, which is expected to start raising its target interest rate by spring.
When the Fed raises interest rates, credit card rates also start to rise.
“If the Fed’s median projection is correct and the fed funds rate increases 75 basis points this year, that would drop the average credit card rate from 16.13% today to around 16.88%. Said Ted Rossman, senior industry analyst at Bankrate.
As a result, the credit card debt you carry will also become more expensive.
Rossman offers the following example: “At 16.13%, a person making minimum payments on the average credit card debt ($ 5,525, according to Experian) would be in debt for 194 months (just over 16 years) and would pay $ 6,160 in interest. Minimum payments would start at around $ 130 and decrease with the balance. At 16.88%, that would take 196 months and $ 6,472 in interest (an increase of $ 312). Minimum payments would start at around $ 133.
As you can see, making minimum payments can keep you in debt longer, especially if rates continue to rise. The best solution is to make paying off credit card debt a priority.
Review your budget and see where you can cut spending to pay off your cards faster. Rossman also suggests nonprofit credit counseling, coping or selling unnecessary goods to raise money.
Paying off your cards can get harder if you have student loans
During the coronavirus pandemic, student loan repayments have been suspended, relieving many budgets.
If this applies to you, you may have reduced your card debt further because your budget has more room for credit card bills.
This, however, may soon change.
“The forbearance period for student loans currently expires on May 1, 2022,” said Hanneh Bareham, student loans expert at Bankrate. “Borrowers who have taken advantage of the federal relief period will need to review their monthly federal student loan payments and their interest rates relative to their other debts. While borrowers should prioritize high-interest debt, like credit card debt, it’s also crucial that they make at least the minimum payments on all of their low-interest debt, including their student loans.
According to Bareham, having to make that monthly student loan payment again could reduce your ability to repay other debt. For this reason, it is best to research the forgiveness options and the benefits that the government offers to federal student loan borrowers.
“There are different repayment plans on offer, such as income-based repayment plans, which can make the monthly amount more manageable,” suggests Bareham. “There are also federal loan forgiveness programs, such as the Public Service Loan Forgiveness (PSLF), which forfeit the federal student loan balance to eligible public servants after 120 on-time payments. “
Whether or not you decide to take advantage of the cashback options, it’s best to try and pay off your credit card balance before you may to avoid overburdening your budget with multiple types of debt.
If that’s not enough time to pay off your balances, don’t worry. There might be another way to avoid credit card interest.
A balance transfer card can help
A credit card with balance transfer allows you to transfer balances from your other cards for a fee (usually 3-5%) and pay no interest for the duration of an introductory period.
In 2020, these cards have become scarce as credit card issuers tighten underwriting for many card products.
In 2021, however, the credit card market was booming and balance transfer cards made a comeback. They came back with a bang, with some cards offering up to 21 months interest free.
To see how this works in practice, let’s go back to our example of having $ 5,525 in debt.
“In this scenario, you could make 21 equal payments of about $ 263 to eliminate that $ 5,525 debt without paying interest,” says Rossman.
This strategy can save you thousands of dollars in interest and years of worrying about credit card payments, especially compared to making only minimum payments on your existing card.
Keep in mind that even though balance transfer cards are available again, it is best to make sure your credit score is in good condition before you apply. Balance transfer cards generally require good or excellent credit.
You may miss it if you are not looking for a new card
Without a doubt, if you are carrying a balance, it is wise to focus on paying off. There is no point in earning credit card rewards if you pay more interest than you earn in points or cash back.
However, if you have zero credit card debt and haven’t applied for a new card in a while, you might be missing out on something.
The recent survey I mentioned found that 28% of Gen Z and 27% of Millennials have never changed or used the same credit card all the time.
Being complacent in your credit card strategy doesn’t have to be bad. You know it works for you and there is nothing wrong with it. It’s understandable that not everyone wants to spend the time staying on top of credit card offers all the time.
Having said that, you are also leaving money on the table by doing so, maybe hundreds or even thousands of dollars.
If you want to improve your credit card game, 2022 is the year to do it.
In 2021, some of the best credit cards got upgraded which made them even more attractive. More and more credit card offers have entered the market, some of them rocking the industry.
More and more credit cards for consumers with bad credit or no credit have started offering rewards. The introductory periods of balance transfers have become longer. News on the premium travel card front has indicated that these cards are set to become more accessible.
With all of these exciting developments, I was able to earn over $ 3,000 in cash back, statement credits, and travel with my credit cards in 2021.
You can do it too, and you can probably do even better this year if you take the time to compare credit card offers and strategize your spending. I expect the credit card market to continue to evolve this year, making offers even more attractive and accessible to more consumers.
Of course, the process of selecting the right card can be a bit overwhelming. If you’re not sure where to start, take a look at the winners of the Bankrate Awards 2022. Using a rigorous scoring system, our experts have reviewed over 250 of the best cards to share the crème de la crème of cards. credit with you.
The bottom line
Credit cards may not be a priority as you step into the New Year. Still, not being up to date with what’s going on with credit card rates and the market itself can take a toll on your wallet, whether your debt gets more expensive, your budget needs to be adjusted, or you miss out. potential savings and rewards.
Remember that in one way or another, credit cards are very likely a part of your financial well-being. Why not make a resolution to keep your credit card strategy healthy this year?