The Debt Trap
When the economy thrives, consumers tend to spend more money. Unfortunately, many Americans have a habit of spending money they haven’t yet earned, so debt also tends to rise when things are going well.
According to a new study by Northwestern Mutual, many Americans have accumulated nearly twice as much debt as savings. Specifically:1
- The average personal debt (excluding mortgages) is $38,000.
- Americans are two times more likely to hold $5,000 to $25,000 in debt rather than in personal savings.
- Two in 10 people spend 50 percent to 100 percent of their income on debt repayment.
- One in 10 people expect to be in debt for the rest of their lives.
Young Americans in particular face steep hurdles. A new LendingTree study revealed that the median debt balance of millennials living in the country’s 50 largest cities is $23,064. However, unlike their older counterparts, the majority of this debt is largely composed of student loans.2
One of the main reasons debt can be debilitating is because it curbs our ability to save for the future. While we may earn enough income to afford payments on a large home, expensive car or monthly balances on credit cards, these spending choices mean we have less money left over to contribute to savings. This, in turn, can negatively impact our long-term financial outlook. After all, we won’t always be earning a high income, so we must be vigilant about saving consistently throughout our lifetime.
One way to save more is to reduce debt and spend less. If we can help you find ways to position your finances utilizing insurance products to work toward a better long-term financial picture, please give us a call.