FINANCE
9 Facts About Debt
EXPECTED READ TIME:5 minutes
Debt can be a sensitive subject. It doesn’t help that there are plenty of misconceptions about debt that complicate the subject. Let’s dispel a few of those myths and learn more about how debt really affects our finances.
1. Debt Can Be Stressful — But You Can Take Control
54% of American adults report sometimes feeling stressed by debt. That stress can affect relationships, health, and even the likelihood of going further into debt.
Importantly, there are many ways you can take control of your debt. The most important step is evaluating your options and creating a plan. Depending on your situation, debt consolidation may be a way to simplify the payoff process. You may also have additional options if you’re carrying medical debt.
2. Debt Can Be Good
Debt gets a bad rap. It’s true that out-of-control debt can have serious consequences, but it’s also true that debt can help you:
Invest in your future
Build credit
Spread out costs to make them more manageable
There are good reasons to take on debt. For instance, you might go into debt for education or training that helps you earn more money or change careers. You could also go into debt starting a business. In these cases, your debt is an investment in a better future.
The trick is to keep debt under control by creating — and sticking to — a realistic payoff plan.
The trick is to keep debt under control by creating — and sticking to — a realistic payoff plan. Creating a budget and tracking your spending can increase your odds of success by helping you avoid taking on additional, unplanned debt.
3. You Can Invest if You’re in Debt
Even if you’re paying off debt, there are still ways you can grow wealth. Open a high-yield savings account and take advantage of employer matches now so you can get the benefit of compound interest. If you find you’re continually dipping into your savings, consider a certificate account.
4. You Can Access Credit Without Going Into Debt
Credit cards are an expensive way to borrow money because of the interest you’re charged when you carry a balance from month to month. This interest is usually higher than the interest charged for other forms of borrowing like personal loans.
However, if you pay off your balance every month before the interest charges kick in, you can enjoy the convenience of a credit card without the high cost. You can also avoid a host of other fees, too, by using your credit card wisely.
If you pay off your balance every month before the interest charges kick in, you can enjoy the convenience of a credit card without the high cost.
5. You Can Build Credit Without Credit Card Debt
Your credit report is the main way lenders evaluate your creditworthiness. Many people assume the only way to build credit is with credit cards, but that’s not the case. In fact, you can use recurring payments on expenses like rent, utilities, and cell phone bills to build a healthy credit history without the added cost of interest.
6. Over Half of Americans Are Carrying Credit Card Debt
Debt can feel isolating, but you’re not alone if you’re carry a balance. As of November 2023, over half of Americans (56%) had outstanding balances on their credit cards, and one in three If Americans have more credit card debt than savings.
7. Credit Card Debt Varies by Generation
Some generations are not only more likely to have debt, but also tend to carry larger balances. As of 2023, Gen X carries an average of $9,123 of credit card debt, the largest of any current generation. Baby Boomers and Millennials carried the second and third largest averages, followed by the Silent Generation and Gen Z.
Credit Card Debt by Generation
Average credit card debt load varies by generation with Gen X carrying the largest average balance, and the youngest demographic — Gen Z — carrying the smallest.
|
Generation |
Average Debt Load |
|---|---|
|
Silent Generation |
$3,412 |
|
Baby Boomers |
$6,642 |
|
Gen X |
$9,123 |
|
Millennials |
$6,521 |
|
Gen Z |
$3,262 |
Data from Experian’s Average Credit Card Debt Increases 10% to $6,501 in 2023. Current as of March 2024
8. Saving Is Important, Even if You’re in Debt
Saving may seem especially hard if you have debt, but it’s important. Regularly saving in a high-yield savings account and building an emergency fund will provide buffers against unplanned debt. It’s this unplanned debt that’s often the hardest to pay off and most stressful.
Saving may seem especially hard if you have debt, but it’s important.
9. You Can’t Inherit Debt
Debt belongs to the person whose name is on that line of credit. If your loved one passes, you won’t be responsible for their debt unless you have cosigned with them. In this case, their debt is also your debt from the time you signed on the dotted line.
The Takeaway
Debt is a powerful financial tool. Knowing the facts about debt is empowering. It erases shame and enables you to manage your finances with more confidence.
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