Debt Carrying Americans Spend a Third of Income on Loans, Credit Cards

The latest findings from Northwestern Mutual’s 2020 Planning & Progress Study reveal that among Americans who carry debt, a third (33%) of their monthly income goes toward paying it off, exclusive of mortgages. If you’re one of them, your credit union can help.

Americans with debt report having $26,621 on average, and 13% of Americans expect to be in debt the rest of their lives.

Among U.S. adults carrying debt, 58% say it has a substantial or moderate impact on their ability to achieve long term financial security. Additionally, many report that debt impacts their ability to reach major financial milestones:

  • 36% delayed significant purchases
  • 29% delayed saving for retirement
  • 18% delayed buying a home
  • 8% delayed having children
  • 7% delayed marriage

Signs of Progress…Before the Storm

There are some positive indications in the data that suggest Americans have been making progress in their ability to manage and reduce debt over the last several years. But it’s important to note that this year’s findings were collected just prior to the steepest impacts of the COVID-19 outbreak. Even so, it is worth noting the trend lines:

  • The total average debt among those who have it has been slowly declining over the years – from just over $38,000 in 2018 to $29,800 in 2019 to $26,621 this year
  • Of those with some debt, over two thirds (67%) have a specific plan to pay it off
  • Over a quarter (26%) of Americans report having no debt

“It is more important than ever to build on these habits as it can help weather the storm. Having a plan to manage debt can act as a guardrail to keep people on track for their long-term goals,” says Mitchell.

The Credit Card Crunch

Credit card bills (22%) and mortgages (21%) are the leading sources of debt for Americans. Car loans (8%) and personal education loans (8%) came in as the next highest sources of debt.

Of the 42% Americans who report holding credit card debt, the average amount is $5,400. Of that debt, over half (52%) went toward paying for absolute necessities like rent, utilities and groceries; 36% was for discretionary expenses such as entertainment, vacations, or dining out; and 11% was used for educational expenses. The study also found:

  • 30% of U.S. adults either always or often pay the minimum payment on their credit card bills, just covering the interest without paying down any principal
  • 33% pay greater than a 15% interest rate on their cards, and 9% don’t know what interest rate they’re paying
  • 12% expect to be in credit card debt between 11 and 20 years, and 7% expect their credit card debt to last more than 20 years

There also appears to be a bit of a learning curve when it comes to credit card usage. More than six in ten Americans with credit card debt (61%) said that if given the choice, they would have changed the way they used credit cards in the past.

  • 56% would have limited their use of credit cards to primarily cover necessities
  • 37% would have gained a better understanding of interest rates
  • 23% would have waited to get a card until they really needed one

See Your Credit Union

Your credit union can help you to manage your debt. For instance, your CU can consolidate your high-interest credit balances into a single, low-interest loan. This can cut down on your monthly payments, so you pay off more principal each month.

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