Debt is part of the average American's life, and you can start to accumulate it as young as your 20s. New findings from Experian's 2020 State of Credit report show that the average Gen Z consumer (ages 24 and younger) has about $10,942 worth of debt, not including mortgages.
25—34 year olds = $78,396
Credit cards often have high interest rates that can cause debt to snowball. Younger millennials carry an average debt of $78,396, primarily due to credit card balances, according to Experian. Only 16% of those in this age group have student loan debt. Furthermore, only 3% have mortgage debt.
“Shark Tank” investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
INCREASED SECURITY. When you have no debt, your credit score and other indicators of financial health, such as debt-to-income ratio (DTI), tend to be very good. This can lead to a higher credit score and be useful in other ways.
Is being debt-free the new rich? Yes, as long as you have money and assets, in addition to no debts. Living loan-free is a fantastic way to stay financially secure, and it is possible for anyone. While there are a couple of downsides to being debt-free, they are minimal.
Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high.
How much money does the average American owe? According to a 2020 Experian study, the average American carries $92,727 in consumer debt. Consumer debt includes a variety of personal credit accounts, such as credit cards, auto loans, mortgages, personal loans, and student loans.
However, far from debt being out of the ordinary, it may be a normal part of everyday life. In fact, studies suggest it's actually normal to owe large amounts of debt.
By age 25, you should have saved at least 0.5X your annual expenses. The more the better. In other words, if you spend $50,000 a year, you should have about $25,000 in savings. If you spend $100,000 a year, you should have at least $50,000 in savings.
The Average Net Worth At Age 25
According to CNN Money, the average net worth for the following ages in 2022 are: $9,000 for ages 25-34. $52,000 for ages 35-44, $100,000 for ages 45-54. $180,000 for ages 55-64.
The general rule of thumb is that you should save 20% of your salary for retirement, emergencies, and long-term goals. By age 21, assuming you have worked full time earning the median salary for the equivalent of a year, you should have saved a little more than $6,000.
About 52% of Americans owe $2,500 or less on their credit cards. If you're looking at $5,000 or higher, you should really get motivated to knock out that debt quickly.
And yet, over half of Americans surveyed (53%) say that debt reduction is a top priority—while nearly a quarter (23%) say they have no debt. And that percentage may rise.
On average, Americans carry $5,315 in credit card debt, but if your balance is much higher—say, $20,000 or beyond—you may be feeling hopeless. Paying off a high credit card balance can be a daunting task, but it's possible.
Former Société Générale rogue trader Jérôme Kerviel owes the bank $6.3 billion.
1/4 of the debt for 25 to 34-year-olds comes from credit cards. 16% of their debt is student loans, while 3% is mortgages.
The simplest way to make this calculation is to divide $10,000 by 12. This would mean you need to pay $833 per month to have contributed your goal amount to your debt pay-off plan. This number, though, doesn't factor in the interest on your debt.
Many people would likely say $30,000 is a considerable amount of money. Paying off that much debt may feel overwhelming, but it is possible. With careful planning and calculated actions, you can slowly work toward paying off your debt.
In August 2021, about 64 million people with a credit record (about 28 percent of Americans) had debt in collections on their credit report, down from 68 million in 2019.
A Critical Number For Homebuyers
One way to decide how much of your income should go toward your mortgage is to use the 28/36 rule. According to this rule, your mortgage payment shouldn't be more than 28% of your monthly pre-tax income and 36% of your total debt. This is also known as the debt-to-income (DTI) ratio.
Many people see debt as a necessary evil, but it still is possible to live—and thrive—without using debt or worrying about your credit scores. The benefits of debt-free living are easy to understand, but it's important to know what challenges you'll face and how to overcome them if you stop playing using credit.
Being debt-free is a financial milestone we often hear about people striving for. Without debt, you can focus on building more savings, investing those extra funds and just simply having more peace of mind about your finances.
Once debt is paid off, your self-confidence can make a fast turnaround. Some individuals even share their debt stories out of a renewed sense of confidence, according to Dlugozima. “You become more open about it because you've gotten through the other side,” said Dlugozima. “It's empowering.”