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How One Young Borrower Conquered Credit Card Debt

Among the country's 80 million millennials there are many Jacob Wilsons – young people who could save money by taking a non-traditional path to a debt-free life.

For Jacob Wilson, credit card debt wasn’t just a number – it was what kept him up at night.

Like many millennials, Jacob left college with a relatively thin credit file. He didn’t have the lengthy credit history and high credit limit that can net you prime interest rates on credit cards. So with high living costs and a low paying starter job, he soon found himself with more than $20,000 in credit card debt. “It just escalates so quickly,” Jacob told SmartAsset.

Jacob isn’t alone. The average millennial’s VantageScore® is 625, according to research by the credit bureau Experian.1 Compare that to the average credit score for those 50+, 709, and it’s easy to see why millennials struggle to get low interest rates on their credit card debt. Experian found that millennials (those aged 19 to 34) carry average credit card debt of $7,799.2 Many of those millennial borrowers may be paying more in interest than they have to.

If you’re young and you don’t have a lot of credit history, the traditional underwriting process doesn’t have a lot to go on when determining how likely you are to pay back your debt. One late payment or maxed out card may not move the credit score needle much for someone with an excellent 20-year credit history, but for a new credit card user, small missteps can tank a credit score. The result? High interest rates.

For Jacob his credit journey started at 18 when he got his first credit card with a credit limit of a whopping two hundred dollars. He felt great about the head start he was getting on building his credit, recognizing that most of his peers were putting off opening lines of credit.

Average Credit Score

For Jacob his credit journey started at 18 when he got his first credit card with a credit limit of a whopping two hundred dollars. He felt great about the head start he was getting on building his credit, recognizing that most of his peers were putting off opening lines of credit.

Generation Y can be credit-shy, held back by the memory of the Great Recession and their heavy student loan burden. In 2006, 80% of 19-year-olds had established credit, according to Experian. By 2014, that number had dropped to less than 50%.3 Many millennials don’t find out how important solid credit is to getting favorable interest rates for credit cards, mortgages or other loans until it’s too late.

So Jacob was ahead of the curve. For six years, Jacob’s credit card spending was under control. He used cards from his favorite retailers to get discounts, but never struggled with paying on time, even with the modest salary he earned at his first post-college job in Austin. Things changed, though, once he moved to New York City. According to Jacob, “that’s when things got a little difficult to manage.”

Once in New York City, working first at an unpaid internship and then at another modestly-paid job, Jacob found himself putting everyday purchases like food and drink on his credit cards. Covering necessary expenses and keeping up with the millennial lifestyle in New York City led him to rack up more and more credit card debt.

At the worst point in Jacob’s debt story he was one of the 65% of millennials to own one or more credit cards: he had three cards, all carrying a balance. In fact, Jacob found himself with more than $20,000 in credit card debt.

He wasn’t spending on luxury items or travel, just “trying to keep up with the pace of the city with a salary that really wasn’t meant for it.” Some months, Jacob faced a choice between making credit card payments and making rent. Like most of us, Jacob didn’t have a wealthy family to turn to for help. “My financial stability was myself,” he said, which made credit his only option.

At the worst point in Jacob’s debt story he was one of the 65% of millennials to own one or more credit cards4: he had three cards, all carrying a balance. In fact, Jacob found himself with more than $20,000 in credit card debt, which is more than the average millennial credit card debt of $7,799 and enough to keep Jacob up at night.5 “It was a huge burden – it was very stressful,” Jacob says of that time. He would log in to his bank account and see that his credit card minimums exceeded the amount he had in his checking account. “It felt like for the longest time I was always upside-down.”

Jacob was keeping his head above water – until a lay-off and a break-up forced him to face facts. When he crunched the numbers, he realized that moving out of the apartment he was sharing with his soon-to-be-ex would require a significant increase in rent payments and other cost-of-living expenses. With his credit card debt as high as it was, Jacob knew it was time for a change. “It was a really big wake-up call. In order to live in the city for the long term I couldn’t gamble by living paycheck to paycheck.”

A friend connected him with the folks at Pave, who offered him a personal loan to pay off his highest-interest credit card. After a simple application process, Jacob was able to cut his interest rate in half. His Pave loan came with a three-year term, but the low interest rate on the loan and an improvement in Jacob’s salary meant he was able to pay it off within a year with no prepayment penalty. He started sleeping better, too. That’s what moving from a credit card interest rate of nearly 20% to a loan interest rate of roughly 8% can do for a person. The typical Pave borrower gets a 13.63% APR or lower which is a low rate compared to the average credit card APR. Every loan is dependent on the unique circumstances of the individual, and interest rates may vary greatly, Jacob is glad he made the effort.

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After a simple application process, Jacob was able to cut his interest rate in half.

He went from a credit card interest rate of nearly 20% to a loan interest rate of roughly 8%.

Jacob is debt-free now. He has one credit card that he uses “for the points” and says he pays his credit card balance every week to make sure he never racks up interest. The money he used to spend on paying interest? It goes into savings. “Now I have a safety net that I never, ever had.”

Among the country’s nearly 80 million millennials7 are, it’s fair to say, more Jacob Wilsons, more borrowers who could save by taking a non-traditional path to a debt-free life. Thirty-eight percent of millennials have credit card debt8, and many know what it’s like to choose between credit card payments and basic expenses like rent or groceries. Jacob’s advice to anyone struggling with debt? “Put yourself on a budget.” And take action sooner, rather than later.

Debt Table
Jacob's Journey

Living in Austin within his means and using cards for retailer discounts

1. For six years, Jacob's credit card spending was under control.

Living expenses increased in New York City

2. Jacob found himself putting everyday purchases like food and drink on his credit carts. He was keeping his head above water - until a lay-off and a break-up forced him to face facts.

He put himself on a budget and decreased his interest rate from 20% to 8%

3. After a simple application process, Jacob was able to cut his interest rate in half.

Jacob is now debt-free living in New York City

4. He has one credit card that he pays off weekly and the money he used to spend on debt now goes into a savings account. He now has a safety net he's never had.

Important Information:

The following examples depict the APR, monthly payment and total payments during the life of a $10,000 personal loan. As a payment example, a three-year $10,000 loan with a 13.63% APR would have 36 scheduled monthly payments of $329.76, and a three-year $20,000 loan with 13.63% APR would have scheduled 36 monthly payments of $659.52.

APRs range from 7.18% - 31.16%. You may be eligible for a loan amount from $3,000 up to $25,000. Repayment terms for 2 or 3 years.

Pave borrowers who received a loan to consolidate existing debt or pay off their credit card balance from April to September 2016 will save $2,174.73 on average over a 36 month repayment period. Pave calculates estimated savings by deriving current credit card APR using minimum monthly payment and 3% of the principal balance. Pave then compares average credit card APR of 15% (http://www.creditcards.com/credit-card-news/interest-rate-report-100114-up-2121.php) to Pave APR (including 3% average origination fee) to determine median savings per borrower.

All loans are made by Cross River Bank, an FDIC insured New Jersey state chartered commercial bank. Pave, Inc. – 200 Varick Street Suite 802 New York, NY 10014

Student outcome data (including graduation and employment data) is based on the cited independent research, and neither the data nor the related methodology has been verified by Pave. These data are not school-specific, and do not represent the outcomes for any particular program or coding academy, and should not be relied on as such. As with any important decision, you should carefully consider your individual circumstances, outcome information provided to you by any coding academy that you are considering attending, and any other generally available information regarding coding academy students’ outcomes. Note that Pave has commercial relationships with its coding academy partners, which may provide financial benefits to Pave or to those coding academy partners if you choose to finance the cost of your attendance at a coding academy with Pave.

Equal Housing Lender

All quotes are portions of an actual interview with Jacob on August 10, 2016.


Footnotes:

  1. https://www.experian.com/innovation/thought-leadership/building-relationships-with-millennials-paper.jsp
  2. http://www.slideshare.net/Experian_US/experian-millennial-credit-finance-survey-report-part-i-of-ii
  3. http://www.experian.com/consumer-information/millennials.html (Video: Targeting Credit-Ready Millennials)
  4. http://www.gallup.com/businessjournal/188984/americans-big-debt-burden-growing-not-evenly-distributed.aspx
  5. http://www.slideshare.net/Experian_US/experian-millennial-credit-finance-survey-report-part-i-of-ii
  6. Your APR and loan amount will be determined based on your credit score, credit usage, credit history, income and certain other information provided at the time of application. Borrower must be a U.S. citizen, and a valid bank account and Social Security number are required. There is no down payment and no prepayment penalty. Approval of your loan is contingent upon meeting our eligibility requirements, our verification of your information, and your agreement to all the terms and conditions on the www.pave.com website.
  7. http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/
  8. http://www.slideshare.net/Experian_US/experian-millennial-credit-finance-survey-report-part-i-of-ii
  9. Represents average across indebted millennials for each category. http://www.slideshare.net/Experian_US/experian-millennial-credit-finance-survey-report-part-i-of-ii

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