How Gen Z can stop becoming Gen Debt, according to a finance expert

It’s not exactly news to many of us that things are somewhat tight right now thanks to rising living costs and an uncertain economy but for Gen Z, there’s even more trouble on the horizon – and it’s related to debt.

In 2023, the average Gen Z is leaving university with £33,000 worth of debt before they’ve even entered the professional world, often at a rate far greater than their average annual salary. According to Priscilla Low, Head of Finance at reward credit card Yonder, this has led to “a generation so used to being in debt that they feel like this is the natural state that they should be in.”

Furthermore, Low tells GLAMOUR: “Because young people have been told time and time again that having a credit card is a dangerous path to go down – they’re not building up their credit score. Instead, this ‘Netflix generation’ are very happy to enter into buy now pay later schemes with little to no thought.”

Low believes there are not inclusive tools on the market to teach younger people about their finances and with the danger that BNPL schemes can have on their credit history, “Gen Z has become incredibly comfortable paying off separate payments throughout the year instead of purchasing products on a credit card, paying that card off at the end of the month and building up their credit scores at the same time.”

Providers, of course, need to be open and honest with consumers on the credit services and young people must do their homework before signing up to any form of credit and understand the implications these can have if payment demands are not met. After all, building up a credit history is all well and good but if you are spending money you cannot pay back, you’re putting your financial future at serious risk.

Priscilla Low’s top tips on how to prevent Gen Z from becoming Gen Debt

1. Sign up for a free credit score tracker like Credit Karma or Clearscore, so you can check your score for free (without impacting it). If you are in debt, you can monitor how regularly paying off sums of this will positively impact your credit score – being in debt doesn’t necessarily mean your score will forever be tarnished! These trackers also offer advice on how to improve your credit score over time, and will help you to visualise how your spending habits affect your score.\
2. Make sure you’re applying responsibly for new credit products and avoid accumulating debt with multiple providers on different cards, as this could drastically lower your credit score. Regularly applying for new types of credit could result in multiple ‘hard’ checks against their credit file, which categorises you as a high risk applicant. This, alongside a low credit score, could impact future applications for larger loans, such as mortgages.\
3. Repay your bill in full each month whenever possible if you have a credit product, as you only pay interest in situations when you don’t pay your full statement balance. But if you ever need to roll some of your bill over to the following month, try to pay more than the minimum payment to reduce the amount you owe and the amount of interest to pay. If you do find yourself getting into debt on a credit product, speak with your provider as they can advise you on how to manage this without having a detrimental impact on your credit score.\
4. Read through your credit or debit card transactions at the end of each month, so you’re aware of your spending habits and can flag to your provider if anything doesn’t look right. By staying on top of your statements, you’re less likely to keep paying for products and services you no longer require and will be more aware of your outgoings vs incomings. Ensuring that the former doesn’t outweigh the latter, will mean you’re less likely to have debt building up.\
5. Most importantly, speak to your credit card provider if you’re having trouble making your repayments. Talking to your provider is one of the best ways to get back on track, as they will help you to create a plan to pay off what you owe in manageable instalments. It’s important to remember that your credit provider is on your side and wants to help minimise the mental and financial stress you could be feeling. The issue of defaulting on payments happens when people are afraid to be open with their providers and ignore the problem, which will only make it worse. Debt doesn’t need to be such a taboo.