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American’s Debt Abyss Driven by the Urge to Splurge

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Four out of ten U.S. consumers with debt, spend up to half of their monthly income on debt repayment. More than one third expect to be in debt between 6 and 20 years while 14% expect to be in debt for the rest of their lives. 

The findings, among others, come from Northwestern Mutual’s 2017 Planning & Progress Study which found 47% of Americans are carrying at least $25,000 in debt, with average debt of $37,000 excluding mortgage payments. Notably, more than 1 in 10 say their debt exceeds a staggering $100,000.

When looking at the sources of debt, similar to 2016, mortgages (29%), credit card bills (19%), and personal educational loans (7% gen pop and 23% for Millennials) topped the list.

Not surprisingly, debt emerged as a significant source of stress and pressure:

• 4 in 10 Americans said debt has a “substantial” or “moderate” impact on financial security and the same number consider it a “high” or “moderate” source of anxiety

• Eliminating all debt (26%) and earning significantly more income (29%) had the most mentions when asked what changes would most positively affect people’s financial situations

• When asked how they would use a $2000 windfall, 40% said they’d pay down debt

Despite recognizing the downsides of debt, the lure of spending remains strong. After covering off on necessities, Americans said 40% of their monthly income goes toward discretionary spending on entertainment, leisure travel, hobbies, and more. In fact, when asked what financial pitfalls they are prone to, one quarter of Americans flagged “excessive/frivolous” spending.

The findings revealed that, among those managing debt, there is no clear consensus on the best strategy for repayment:

• “I pay as much as I can on each of my debts each month” (35%)

• “I pay off debts with the highest interest first and make minimum payments to others” (19%)

• “I pay what I can when I can” (18% gen pop – 25% Millennials)

• “I make minimum monthly payments to each creditor” (17%)

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