Millennials Prefer Prepaid Cards over Credit Cards. Is it Credit Savvy?

They are young with a “not-so-established” credit life – they are the Millennial generation. In a recent survey by Think Finance, Millennials indicate they are opting out credit card debt and are choosing instead prepaid cards and cash transactions. Forty-five percent of the respondents age 18 to 34 use prepaid cards over credit cards, and that convenience and reduction in credit card debt is seen as the most significant reason for such preference. Is the Millennial group making awise decision? Let’s discuss it.

Prepaid cards vs. credit card

For the Millennial generation who are underemployed and strapped in student loans, living a cash life is necessary to avoid extra charges and fees brought about by credit card use. What’s important for this age group is control and flexibility of their current finances. One positive effect of this declining credit card use is that the number of people with credit scores over 760 has increased from 8.6% to 11.2% in 2012. Another reason why people ages 18 to 24 opted for prepaid cards is because the recent changes in credit card applications have placed more restrictions – income requirements have become more strict and co-signers are needed if those age 21 and under applicants have insufficient income.

However, prepaid cards are known for charging fees including a monthly usage fee, fees for checking your remaining balance, fees when making ATM withdrawals, as well as a fee for activation. Prepaid cards let consumers enjoy the convenience of cashless transactions without having to worry about impulsively racking up charges, because you can only spend what you have deposited in your account. Knowing this, there is no way for you to spend more than what you have placed in your account and provides a good way to controlling your spending habits.

Establishing a good credit score and history

Credit cards, despite the fact that spending can go virtually uncontrolled and lead to credit card debt, are a great way to build your credit score. Since Millennials are very frugal about their spending, they should look for simple credit cards with low interest rates, no annual fees and low credit limits. Their goal should not be spending, but to establish a credit reputation that can back them up when making major life purchases in the future. There is not a need to use credit cards for daily purchases; just one or two purchases every month and payment of the balance in full is enough to establish a positive payment history. Always bear in mind that one of the most important components of your credit score is your payment history. Plus, if you have a credit card with you and a student loan, as well, it’s a good mix of credits (combination of different credit accounts is also one important factor that go into your credit scores).

Credit card use for fraud prevention

Another good aspect of credit cards is that they offer protection in the event of credit card fraud. Millennials are known for being tech-savvy and a convenient way to make purchases is to shop online. If credit cards are used for online transactions, shoppers are protected against fraudulent purchases. In case something goes wrong with their online purchases, they can easily dispute it with the providers and if the dispute is valid, they will not be liable for the fraudulent transactions, thus minimizing their losses.

To sum it all up, it’s just a matter of understanding responsible spending habits, because credit cards can be a great thing if used properly and wisely.

Joy Mali is an active blogger who is fond of writing articles on Finance and educating people to monitor their credit report on regular basis to minimize the risk of fraud. Follow her on Twitter to know more on why Millennial prefer prepaid cards over credit cards. 

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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