According to Federal Reserve data, student loan debt has surpassed $1.5 trillion and comprises 11% of America's collective household debt balance – second only to mortgage debt. More than 44 million Americans have student loan debt, with an average balance of around $33,000.
Given those statistics, you might expect student loans to be the biggest debt burden for millennials. However, at least part of the millennial generation has other debt concerns. According to the 2018 Planning and Progress Study from Northwestern Mutual, credit card debt outpaces student loan debt for older millennials (ages 25-34).
Among older millennials, credit card balances make up one-quarter of the average debt burden, compared to the 16% burden from student debt.They also carry more personal debt ($42,000) than the average personal debt of $38,000.
In some ways, this finding makes sense. Younger millennials are just starting their careers and beginning to pay down their student debt. They're also unlikely to have built up the larger expenses of their slightly older counterparts – especially given the millennial aversion to credit.
Older millennials may also be letting their balances rise instead of attempting to pay them down. The Northwestern Mutual Study cites a continuing "buy and borrow" cycle that accumulates credit card debt at increasing rates. According to the study, once basic necessities are met, Americans applied almost the same amount of their monthly income to discretionary expenses as they did to repaying debts.
Other study findings also conclude that debt repayment is a low priority – conflicting with the study finding that 53% of Americans considered debt reduction as their top priority for 2018. Survey respondents were twice as likely to have $5,000 to $25,000 in accumulated debts than they were to have in accumulated personal savings. Only 23% of respondents have no debt at all, compared to 27% in the previous year's survey.
Those who prioritize debt repayment appear to be struggling. Approximately 20% of respondents are applying 50%-100% of their income to debt repayment.
While it's important to pay back student loans, it's important to limit credit card debt and not let balances rise. The average credit card interest rate is just over 17% – well above student loan interest rates. Interest charges accrue quickly, and missing payments will incur fees and trigger interest rates that can exceed 30%.
Excessive credit card debt can lead to a debt spiral, where you can't even afford to pay off the interest charges, much less the balance. Once you hit that point, default is highly likely.
Since older millennials – or any generation – can't do anything about the debt they've already incurred, they must focus on reducing expenses to keep from piling up new debt. You can't pay off credit card balances without a monthly surplus to apply to that balance.
Does the financial struggle of older millennials look familiar to you? If so, it's time to revise your budget. Focus on needs over wants and look for areas to cut expenses. If you're one of the folks devoting half or more of their income to debt repayment, you may have to investigate alternate income sources. Whether it's a second job, a side gig, or the sale of unused assets, you need extra cash to hack away at your balances.
Eventually, you can pay down your debts and apply your surplus to savings – to stay out of debt in the future.
The 2018 Planning and Progress Study serves as a warning to Americans that are piling up excessive debt. Are you listening to their warning?
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