Outstanding consumer debt in the US is currently around $ 14.88 trillion, representing an average individual debt of nearly $ 93,000. While older generations bear most of this debt, the nation’s younger adults are rapidly mounting their own debts.
Members of Generation Z, who are between the ages of 18 and 23, have an average total debt of $ 16,043, according to data from an Experian consumer debt study. Experian analyzed its database of credit reporting information to measure average credit card debt, student loan debt, auto loan debt, and personal loan debt for Gen Zers who have each type of debt.
- Average credit card debt: $ 1,963
- Average debt for student loans: $ 17,338
- Average Auto Loan Debt: $ 15,574
- Average personal loan debt: $ 6,004
The generation had the highest debt growth of any generation between 2019 and 2020, with an average balance that increased 67.2% from $ 9,593. Experian said in its report that the increase “seemed to continue with age; the greatest growth was among the youngest consumer group.”
The next closest growth was that of millennials (ages 25 to 40), whose average debt grew 11.5% from $ 78,396 in 2019 to $ 87,448.
Although their debt is growing, Gen Z members are in a great place to pay it off, says Greg McBride, Bankrate’s chief financial analyst. Not only are they young and have plenty of time to pay, but they also have time to develop solid 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 because they tend to have the highest interest rates. This is known as the “avalanche method” and is a long-term money saver because it reduces the total amount you pay in interest.
McBride also cautions that credit card debt is the most dangerous type of debt a young person can have. “You not only want to pay that off as quickly as possible, but you also want to avoid it in the future,” he says.
But we are all different and there is no one-size-fits-all strategy. In some cases, the “snowball method” is the best way to go. This strategy makes people start with their smallest debt first and work their way up to the largest debt. In 2016, Harvard Business Review researchers found that the snowball method proved to be the most effective strategy because of its motivational qualities.
“For some people, it makes more sense to have the booster to get some debts paid,” says McBride. “It could put some wind in your sails and keep you focused.”
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