According to a recent study from Visual Capitalist, Gen Z maxes out its credit cards more than any other generation at 15.3% of cards.
In this study, maxing out credit cards is considered 90% or higher utilization across all cards. The study also found that the median balance for Gen Z was $760, with a median credit limit of $4,500. For comparison, the median credit card balance for other generations broke down like this:
- $2,378 for millennials
- $3,017 for Gen Z
- $1,599 for baby boomers
Learn More: 5 Millennial Money Habits That Gen Z Resists
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In this article, GOBankingRates explores possible reasons why Gen Z maxes out their credit cards the most and what they can do about it.
Possible Reasons for Gen Z Maxing Out Credit Cards
According to the experts, there are a few logical reasons for 15.3% of Gen Z credit cards being maxed out.
Lower Credit Limits
“With credit limits, Gen Z has had less time to build a credit history due to being younger and earlier in their careers, so their income and debt-to-income ratios are lower,” said Christopher Heung, chief technology officer at Lakefront Finance.
Many members of Gen Z graduated from college during the pandemic, which could’ve impacted their career trajectory. You also have to factor this in with the growing student debt crisis, which has caused Gen Z to have higher amounts of debt overall.
All this leads to a substantially lower credit limit, and so it’s more likely that Gen Z is maxing out those lower limits across the board.
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Higher Than Normal Expenses
“Gen Z faces increased financial pressures, from rising costs of living, such as housing and healthcare, to student loan debt and the overall economic climate,” noted Kristy Kim, the CEO and founder of TomoCredit. “These financial challenges could lead them to rely more heavily on credit cards to bridge the gap between income and expenses.”
With stubborn inflation figures bringing up the costs of everything in the economy from rent to basic necessities, Gen Z could be struggling to stay on top of their bills as they try to handle these higher prices.
For example, The Washington Post found that the average rent shot up from $1,435 in 2019 to $1,712 in 2024.
With everyday expenses increasing, it’s evident that Gen Z continues to face financial pressures to stay on top of their finances.
Less Financial Education
“Gen Z has also had less financial education, partially because they’re younger and thus less experienced, but also because upwards of 20% of Gen Z relies heavily on social media like TikTok for financial education,” noted Heung. “These content creators and influencers are mostly not financial professionals, so they’re not recommending tried and true, ‘boring’ financial tips like making a budget, prioritizing debt repayment and creating an emergency savings fund.”
The harsh reality is that social media is filled with inaccurate financial advice that could harm younger people. There’s also an abundance of content showing others living an exciting lifestyle, which can entice young people to spend money on credit to try to keep up.
Kim added, “Many young adults might not fully understand the long-term effects of maxing out their credit cards or the impact that high credit utilization has on their credit scores. As a result, they may inadvertently hurt their financial standing by over-relying on credit.”
Advice for Gen Z To Avoid Relying Too Heavily on Their Credit Cards
Here’s what Gen Z can do if they’re struggling with maxed-out credit cards at the moment.
Make an Honest Assessment of Your Financial Situation
Heung noted that Gen Z’ers looking to lower their reliance on credit cards begin by first assessing their current financial situation. This includes understanding debt versus assets, credit score and current spending habits.
“Building good financial habits takes time and is usually a compromise: it’s unreasonable to suggest someone stop all discretionary spending,” Heung added.
It’s crucial to figure out what’s holding you back from saving money and to prioritize your financial goals instead of trying to live in the moment. This leads into the next point.
Build an Emergency Fund
“One of the best ways to avoid maxing out your credit card is to focus on building an emergency fund and step up your budgeting game,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com.
While this strategy will take some time to implement, you want to do your best to save up some money for a rainy day because you never know what expenses life can throw at you.
Building an emergency fund can help you in the future when you have to face an unexpected situation so that you don’t have to rely on credit.
Try Out Budgeting Apps
Kullberg stressed that budgeting apps are a great option for Gen Z to help track their spending and expenses in real-time. If you don’t know where your money’s going, you won’t be able to figure out how to manage it better.
Luckily, numerous budgeting apps can help you get a hold of your finances so that you understand what’s happening.
Kullberg concluded, “It’s also super important to pay off your credit card balance every month, and, at the very least, make more than the minimum payment to avoid getting slammed with interest.”
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This article originally appeared on GOBankingRates.com: Why Gen Z Maxes Out Their Credit Cards Most — And What They Can Do About It
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