The stock of consumer debt in the United States is currently about $ 14.88 trillion, which represents an average individual debt of nearly $ 93,000. While older generations hold much of this debt, the country’s youngest adults are rapidly accumulating their own debts.
Gen Z, aged 18 to 23, have an average of $ 16,043 in debt, according to data from an Experian study on consumer debt. Experian analyzed its Credit Report Information Database to measure average credit card debt, student loan debt, car loan debt, and personal loan debt for Gen Z who hold each type. of debt.
- Average credit card debt: $ 1,963
- Average student debt: $ 17,338
- Average auto loan debt: $ 15,574
- Average personal loan debt: $ 6,004
The generation experienced the strongest growth in debt of any generation between 2019 and 2020, with the average balance increasing 67.2% from $ 9,593. Experian said in its report that the increase “seemed to follow with age – the greatest growth occurred among the younger group of consumers.”
The second closest growth was among millennials (aged 25 to 40), whose average debt rose 11.5%, from $ 78,396 to $ 87,448 in 2019.
Although their debt is growing, Gen Z is in a good position to pay it off, says Greg McBride, chief financial analyst at Bankrate. Not only are they young and have plenty of time to pay, but they also have the time to develop strong financial habits for the rest of their lives.
“The sooner you get into the habit of saving for emergencies and retirement, the better off you’ll be in the long run,” says McBride.
For most people, McBride recommends prioritizing high-cost debt like credit cards and other installment loans, as they tend to have the highest interest rates. This is called the “avalanche method” and it is a long term money saver because it reduces the total amount you pay in interest.
McBride also warns that credit card debt is the most dangerous type of debt for a young person. “Not only do you want to pay this off as quickly as possible, but you want to prevent it from continuing,” he says.
But everyone is different and there is no one-size-fits-all strategy. In some cases, the “snowball method” is the best way to go. This strategy allows people to start with their smallest debt and work your way up to their highest debt. In 2016, researchers for the Harvard Business Review found that the snowball method turned out to be the most effective strategy due to its motivating qualities.
“For some people, it makes more sense to have the reinforcement of the repayment of certain debts,” said McBride. “It might put some wind in your sails and keep you focused.”
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