Gen Xers: 4 steps for tackling your debt


4 steps for tackling Gen X debt
4 steps for tackling Gen X debt

If you've committed steps from Michael Jackson's "Thriller" video to memory, held a personal jam session via Walkman or gasped when Darth Vader revealed he was the father, then you're likely a member of Generation X.

Along with those cultural touchstones, Americans born between the mid-1960s and early 1980s share some financial traits that are not so fun. They tend to have more debt and less savings than their baby boomer or millennial counterparts.

To some degree, it's not surprising. Any generation in its 30s and 40s is going to be squeezed on many sides, juggling a mortgage and expenses for raising children and caring for aging relatives. Building your own wealth, supporting your children and helping your parents are perennial issues, but Gen Xers had each of those issues intensified:

  • In the first decade of the 2000s, mortgages became easy-to-get candy, and then turned toxic, trashing household wealth and swallowing up billions of dollars in value.
  • Educating yourself, your children or both became extraordinarily expensive.
  • Health care costs, including those of aging relatives, soared.

Debt residue
The result: Gen Xers are more in debt than their parents were at their age. According to a 2014 study from The Pew Charitable Trusts, 3 out of 4 Gen Xers made more money than their parents in inflation-adjusted dollars. But only 1 out of 3 was more wealthy.

Somme of it was due to the credit rug being pulled out from under them, says Christine Haviaris, a CPA and financial planner with TTR Wealth Partners. She says Gen Xers grew into adulthood during the robust economy of the 1990s, when employment and access to credit were plentiful. That meant Gen Xers had money with no real foundation in financial literacy, she says. "Good earnings weren't enough," she says. "Having available credit means you can spend. It doesn't mean you can afford."

But then came the bursting of both the dotcom and housing bubbles. As a result, millennials tend to approach investing and debt with more suspicion, she says.

Making it worse, "Gen X is the first generation inundated with athletes, musicians and movie stars making and spending exorbitant amounts of money," said Nick Bradfield, founder of Divvy Investments, in an emailed response to questions. "Their money was then flaunted through the media, television and music industry, which led to a 'keeping up with the Joneses' mindset."

Traditional budgeting processes simply won't work for this generation.

-- Ted Jenkins
oXYGen Financial

Strategies for tackling debt
If you're a Gen Xer struggling with debt, none of this is new. But there are steps experts say you can use to get back on track.

1. Beware of 'invisible' money.
"Traditional budgeting processes simply won't work for this generation," says Ted Jenkins, a financial planner and co-CEO of oXYGen Financial. Constant access of online banking has replaced the perceived need to regularly plan spending.

But you can fight this problem by using technology, too. Financial apps and banking programs contain tools to help you track spending and stick to budgets. Many can send out alerts, too, when your account gets to a certain limit or you've gone over budget for a certain category of spending. Even accounting for your spending with an old-fashioned spreadsheet is a good start.

2. Minimize mortgage and home upkeep
Jenkins urges Gen Xers to keep mortgage payments and home upkeep to no more than 25 percent of take-home pay. Existing homeowners should investigate options for refinancing to a lower interest rate without extending their loan term, and investigate other ways to save on housing expenses.

Aja McClanahan has experienced firsthand how paying off debt impacts the choices families make. She married in her mid-20s and accumulated plenty of debt from student loans, cars and credit cards. She eliminated housing payments by moving into her grandmother's mortgage-free home. The catch: The free house was in one of the highest-crime neighborhoods in Chicago. The move allowed her family to aggressively pay off $110,000 in debt in 2013. Moving to a community plagued by social ills, small children in tow, may seem drastic to some, but McClanahan has no regrets. "Looking back, we're glad we did it and can now focus on saving in order to retire in our 40s." 

3. Accept that going slower than you hoped is still progress
Completing a plan to pay off debt may take longer than expected, especially when you encounter distractions. Try to appreciate all financial progress, even if at a snail's pace, when life throws you curveballs. Jessica Garbarino is a financial coach and writer who experienced a pause in momentum on her journey to become debt-free. "I lost steam halfway through after being a caretaker for my grandparents for a year, but I regrouped and finally finished paying off $56,000 of debt."

4. Limit lifestyle inflation
Combining an increase in income with additional expenses, such as financing a larger home or more expensive car, can create lifestyle inflation. Elle Martinez, like other members of her birth cohort, is familiar with the phenomenon. Through email, she revealed that, "Our income has grown through the years so it's easier to pay" debt. However, family responsibilities have diverted some of our funds and focus."

Adam Funk, a financial planner and adviser at Savings Coach, strongly suggests that Martinez and others in her situation use bonuses or other increases in income to pay off outstanding debt. "It takes purpose! If people can do it themselves then great. Otherwise, hire someone else such as a certified financial planner or therapist to meet with annually and set goals to hold you accountable." With this in mind, Gen Xers can consciously minimize lifestyle inflation and avoid detours on the path to accomplishing their financial goals.

Haviaris advises her clients that the best approach to getting ahead financially is to take on "no unnecessary debt, period." She recommends taking out mortgages on sensible homes for no more than 15 years, with a 20 percent down payment, and paying for automobiles with casH. Finally, she recommends closely monitoring credit card usage. Those who carry credit card balances beyond the grace period are spending more than they can afford and should switch to debit cards or "good, old-school cash."

See related: When is it time to 'cut off' your financially dependent parents?, 7 tips for using budget apps safely

Published: March 14, 2016

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Updated: 10-24-2016

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