According to a recent study, Gen Zers are racking up credit card debt at nearly three times the pace of everyone else. Rising inflation is certainly a key factor, but a general lack of personal finance education and easy-to-use financial products also have an impact. With a traditional credit card, you can overspend and do something called “carrying a balance.” Over the past year, Gen Zers have seen their carried balances rise by about 30%.
These statistics are concerning - but why exactly are they concerning? To answer that question, we’ll have to take a look at how credit cards work and what credit card debt actually is. In doing that, we’ll also be able to take a look at how you can protect yourself, and why Fizz is the perfect antidote to the rising tide of credit card debt.
How does a normal credit card work?
When you open a normal credit card, you get a credit limit that’s typically way more than you would ever want to spend in one purchase - or even over the course of one month. This encourages overspending, and is part of the way that credit card companies have made so much money over the years.
With a normal credit card, you can spend as much of your credit limit as you like. Every month, you’ll get a bill for what you purchased, and you’ll be asked to pay it off. However, credit card companies also give you the option to carry a balance by paying less than what you spent. As long as you pay the minimum (which is usually only about $35, discouraging you from paying your bill in full), you can carry your balance over to the next month and keep using the card - you just can’t go over your spend limit.
What is credit card debt?
When you carry a balance on a credit card, you don’t have to pay for your purchases right away. But you still end up paying for them eventually, and you also end up having to pay lots of interest on the balance you carried. This is why you should always pay off your balance in full and on time. If you don’t carry a balance, you won’t owe any additional money.
Credit cards typically come with extremely high interest rates - usually in the realm of 20% to 30%. When you don’t pay off your credit card balance in full, the carried balance begins to grow, and you end up paying the credit card company between 20% and 30% more every single year. From that perspective, it’s easy to see why credit card debt can quickly spiral out of control. Even if you only carry a balance of a few thousand dollars over the course of a year, you’ll end up owing the credit card company hundreds of additional dollars. And if you weren’t able to completely pay your bill originally, paying hundreds of additional dollars in interest is likely going to be even harder.
This is the spiral of credit card debt that people and studies are always talking about. It amounts to not being able to pay for what you buy - and then being buried by credit card companies on top of that.
Why Fizz makes everything better
Traditional credit cards give you every opportunity to carry balances, amass credit card debt, and screw up your finances. And it’s only part of why the vast majority of Gen Zers don’t trust their financial institutions. The overall lack of good credit-building options for young adults is staggering.
But that’s where Fizz comes in. With Fizz, you don’t need to worry about credit card debt, because we don’t charge fees or interest in exchange for helping you build your credit. With a Fizz card, you get a credit limit that’s based on your bank account balance - not just an arbitrarily high number. Fizz also operates on a daily repayment cycle, so instead of getting stuck with a big bill at the end of the month, you can wake up every morning with a $0 balance and avoid the risk of overspending and going into debt.
Fizz builds your credit just as well as any traditional credit card out there, and to top it off, we don’t check your credit when you sign up so you don’t have to worry about a hard pull on your credit or getting denied. Fizz can also help you budget, earn cash back, and learn about personal finance. Traditional credit card companies have been giving young adults a bad deal for decades. We’re proud to say that Fizz is here to save the day. So don't wait. Download the Fizz app and get your card today!
Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.