Personal Debt in America

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“Debt means enslavement to the past, no matter how much you want to plan well for the future and live according to your own standards today. Unless you’re free from the bondage of paying for your past, you can’t responsibly live in the present and plan for the future.” Tsh Oxenreider, Organized Simplicity: The Clutter-Free Approach to Intentional Living

Debt stands stubbornly in the way of Americans’ financial goals and life dreams.  Moreover, debt is the biggest barrier to wealth creation and is the great destroyer of wealth. Debt and financial freedom are polar opposites – they never meet. Where there is debt, there cannot be wealth and financial freedom.

In the U.S., adults aged 18+ report having an average of $29,800 in personal debt, exclusive of mortgages, according to the latest findings from Northwestern Mutual’s 2019 Planning & Progress Study. The research also revealed that 15% of Americans believe they’ll be in debt for the rest of their lives.

While those numbers are staggering, they represent an improvement over last year when U.S. adults reported an average of $38,000 in personal debt. Still, the debt problem in America continues to run deep with wide-spread implications. The study found:

  • On average, over one-third (34%) of people’s monthly income goes toward paying off debt
  • 45% of Americans say debt makes them feel anxiety on at least a monthly basis
  • 35% report feeling guilt at least monthly as a result of the debt they’re carrying
  • One in five (20%) report that debt makes them feel physically ill at least once a month
  • One-fifth (20%) of U.S. adults are not sure how much debt they have
  • Over one in three Americans (34%) are unsure how much of their monthly income goes toward paying off their debt

Among the generations, Gen X reported the highest levels of personal debt with $36,000 on average. They’re followed by Baby Boomers at $28,600; Millennials at $27,900; and Gen Z at $14,700.

This is the latest round of findings from the 2019 Planning & Progress Study, an annual research project commissioned by Northwestern Mutual that explores Americans’ attitudes and behaviors towards money, financial decision-making, and factors impacting long-term financial security. This year marks the 10-year anniversary of the study.

The Credit Card Crisis

The leading sources of debt for most Americans is a tie between mortgages and credit cards, according to the study. An equal 22% of U.S. adults listed each as their main source of debt, more than double the next two highest sources — car loans (9%) and personal education loans (8%).

Millennials cite credit card bills as their main source of debt (25%), while Gen Z notes personal education loans as theirs (20%). Both Gen Xers (30%) and Baby Boomers (28%) note mortgages as their leading source of debt, followed by credit card bills (at 24% and 18% respectively).

Digging deeper into the numbers around credit card debt, the study found:

  • Nearly one-third of Americans (31%) are paying interest rates on their credit cards greater than 15%
  • Over 1 in 10 (12%) say they “always” pay only the minimum required payment, just covering the interest without paying down any principal
  • Close to one-fifth (19%) don’t know what their interest rate is, with Millennials being the most likely to report not knowing (22%)
  • 18% report having four or more credit cards, with Baby Boomers being more likely than other generations to have four or more (23%)

According to the Federal Reserve Bank of New York, credit card debt has reached $868 billion in the United States, and delinquencies are on the rise.

“Before you spend, earn. Before you invest, investigate. … Before you retire, save.” William A. Ward

When you are in debt the clock works against you. Every morning when you wake—weekends, holidays, sick days, birthdays and work days—you are already behind. The mortgage, credit card, car loan, et cetera, all tacked on interest the second after midnight. Long before you rolled out of bed and poured your first cup of coffee you need to work to pay the interest before you have money for food, clothing, shelter or entertainment.

In debt you are a slave; without debt you’re free.  Every day in debt you owe your master. Every day! He is a cruel, heartless master. When the clock ticks past midnight the interest for the day ahead is due.  Only those without debt and in possession of investment assets are free to live each day as they choose.

Without debt you are free; without debt and with possessing of assets and wealth, each day is yours to use as you chose.

References:

  1. https://news.northwesternmutual.com/planning-and-progress-2019
  2. https://wealthyaccountant.com/2018/04/12/the-greatest-secret-between-debt-and-wealth/
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