The Credit Card Trap: How Gen Z Can Avoid Maxing Out

Did you know that 1 in 7 Gen Z cardholders have already maxed out a credit card?¹ With the appeal of “buy now, pay later” and easy credit access, it’s no wonder so many young people fall into the trap of overspending.  

But maxing out your credit card can have long-term consequences that affect your financial stability. If you're part of this statistic, it’s important to understand how credit card debt can negatively impact your financial life—and, more importantly, how to avoid falling into bad habits or rebound if you already have. 

The impact of credit card debt on your financial life 

Credit card debt is a double-edged sword. Your credit utilization rate—the amount of available credit you’re using—plays a big role in your credit score. Maxing out your card pushes your utilization rate to 100%, which can tank your score. A lower credit score makes it harder to get loans for purchases like a new car or a house.  

Debt also limits your capacity to save for these things because you’re stuck in a cycle of paying off debt. Every time you carry over a balance, interest will continue to pile up and make it harder for you to dig out.  

Lastly, financial struggles can cause emotional strain, affecting your mental well-being. The pressure to make minimum payments while keeping up with other bills can create a cycle of anxiety. 

Avoiding bad credit habits 

The good news? You can avoid falling into the credit card trap by establishing healthy financial habits either from the start, or while recovering from credit card debt. Here are a few ways to stay on track: 

• Understand your spending habits. Take a close look at where your money goes each month. Are you spending on needs or wants? Building awareness is the first step toward better control, and General Electric Credit Union’s (GECU) Money Management tool can help. Access your dashboard within Online Banking or our mobile app for a visual representation of where your money is going.² 
• Set a budget. Budgeting may seem like a hassle, but it’s one of the best ways to stay within your financial limits. Use Money Management to allocate a specific amount for discretionary spending and stick to it, leaving room for savings and debt repayment.  
• Only charge what you can pay off. A golden rule of credit cards is to never charge more than you can pay off in full each month. This keeps your balance at $0 and helps you avoid paying interest. 
• Use credit for emergencies or planned purchases. If you need to use your credit card, try to keep it for emergency expenses or planned purchases where you already know how you’ll pay it off. Treat credit as a tool, not a crutch. 

Rebounding from credit card debt 

If you’ve already maxed out a credit card, it’s not too late to bounce back. It sounds obvious, but it’s important to stop using your credit card until you’ve paid down your balance. Switch to a cash-only or debit card system for day-to-day spending. 

• Credit cards aren’t the only way to earn rewards. Discover how GECU’s Round-Up program, available to our checking accountholders, could help you earn up to $350 in debit card rewards.³ 

Then, adjust how you pay off your card balance. Making minimum payments won’t get you out of debt anytime soon. Paying as much as you can toward your balance every month will help you pay down the debt faster and reduce the amount of interest you owe. 

If you have multiple credit cards with balances, consider brainstorming a debt payoff plan. Start by tackling your high-interest debt first, as this will save you the most money in the long run by reducing the amount of interest you owe. Once you eliminate your highest-interest balances, you can begin chipping away at the remaining debt with smaller interest rates. 

Lastly, consider a balance transfer as a strategy to pay down credit card debt more effectively. A balance transfer allows you to move your existing high-interest debt to a new credit card with a lower or 0% introductory interest rate, giving you time to focus on paying down the principal without accumulating more interest. This can significantly reduce the total amount you owe if you’re able to pay off the balance within the promotional period.  

However, be mindful of any balance transfer fees and make sure you have a plan in place to pay off the debt before the higher rate kicks in. When used wisely, a balance transfer can help you regain control of your finances and speed up the debt repayment process. 

Gen Z has the ability to take control of their financial future, beginning with smart credit management. Avoid the temptation to overspend, and if you’ve already maxed out, take steps to rebuild. With smart strategies, you can turn your credit card into a tool for financial freedom, not a burden. If you’re interested in learning more about GECU’s low-rate cards and balance transfer opportunities, visit a branch or go online to schedule a virtual appointment.