Americans are gaining confidence about becoming debt-free during their lifetimes, according to a new CreditCards.com national poll.
Americans are gaining confidence about becoming debt free during their lifetimes, according to a new CreditCards.com survey.
The national telephone survey of 1,000 U.S. adults showed about 19 million people 12 percent of all consumers who have debt believe they will never pay off what they owe. That’s a vast improvement over the 2015 survey, when 21 percent said they would die in debt. Additionally, 24 percent of people surveyed said they have no debt up from 22 percent in 2015 and 14 percent in 2014.
“Over the last three or four years the economy has improved, job growth has been strong and wealth has been rising,” said James Chessen, chief economist at the American Bankers Association (ABA). “I think people are feeling wealthier and feel they have the capacity to repay debts.”
Here’s what the study found about consumers’ expectations of getting out of debt:
- Millennials are the most positive about paying off debt. Nearly 60 percent of younger millennials (ages 18-25) think they can wipe out their debt by age 30. Members of the baby boom and Generation X were more likely to say they would die in debt or pay it off when they’re older than 60.
- Most people would save the extra money if debt was erased. Seventy-two percent of debtors said they would save for retirement, an emergency, a new home or college if they no longer owed anything. Retirement (32 percent) was by far the most common answer.
- Many seniors would splurge. A mere 6 percent of respondents said they would spend their savings on a big-ticket item or a vacation if their debt was erased. However, members of the silent generation (ages 71 and up) said they were more likely to splurge than others.
- We think we’re better off than those close to us. Forty-eight percent of people who are in debt said they owed less than their close friends and family, and 37 percent said they had about the same. Only 9 percent said they had more.
- 53 and debt free. The average age people expect to be debt-free has changed little from previous years’ surveys (53 in 2016, 54 in 2015, and 53 in 2014 and 2013).
The scientific survey of 1,000 consumers, including 614 who have debt, was conducted via landline and cellphone Dec. 8-11, 2016. See survey methodology.
The Great Recession’s silver lining
Debt can be a life sentence if it isn’t managed well, but even the best borrowers can suffer in an economic crisis. Painful as it was, the Great Recession was an about-face for many Americans carrying debt. In 2012, the Federal Reserve’s household financial obligation and debt service ratios fell to historic lows, and they remain at levels not seen since the ’90s. ABA’s Chessen said any newfound optimism consumers have about paying off their debts could be a direct result of this deleveraging.
“It suggests that people felt they were carrying too much debt,” he said. “The possibility of a job loss or other financial disruption was debilitating, and they worked hard to avoid that situation in the future. I think there were some lessons learned from that.”
The economy has improved and interest rates remain at historic lows, but consumers continue to borrow responsibly. Delinquency rates for closed-end loans and credit cards have remained at 15-year lows for the past three years, according to the bankers’ group. This despite the fact that consumer debt is quickly approaching pre-recession levels.
Perhaps as a result of this good behavior trend, some credit counselors report seeing lower demand for their services these days. Mike Sullivan, personal finance consultant at Phoenix-based Take Charge America, said his group has experienced lower call volume as the economy has improved.
“We certainly get fewer people calling because they’re out of work, which used to be a fairly frequent problem,” Sullivan said. “We’re also getting fewer people calling because of medical debt. We find that the people who do call up are less likely to be drowning in credit card debt as opposed to other issues.”
The election of Donald Trump to the presidency may have brightened the financial outlook of indebted Republicans and Independents more so than Democrats.
Only 12 percent of Republicans and 11 percent of Independents surveyed said they would never get out of debt down from 25 percent and 21 percent in 2015, respectively. Meanwhile, the portion of Democrats who said they would die in debt fell from 14 percent in 2015 to 10 percent in 2016.
What millennials have in common with Depression-era youth
It’s not surprising that Gen-Xers (ages 36-51) and baby boomers (52-70) are more likely than millennials (18-35) to say they’ll pay off their debt in retirement or never. The older groups are more likely to be paying off long-term installment loans such as mortgages and student loans for their grown-up children.
“The prime borrowing years for most people are really between ages 35 and 55,” Chessen said. “They’re buying houses, they’re paying off student debt, they’re having children there are a lot of expenses they need to borrow against to pay for.”
Numerous studies, however, suggest that millennials are more averse to debt than previous generations because they came of age during the Great Recession.
Millennials “are going to be very different from their Gen-X and boomer peers, in the same way people who went through the Great Depression were different from generations that came before and after them,” said John Pelletier, director of the Center for Financial Literacy at Champlain College.
Pelletier noted that millennials are delaying or eschewing altogether home ownership. Real estate tracker Trulia found in a December 2016 study the share of people between the ages of 18 and 34 who live with their parents is at the highest level since 1940, despite an improving U.S. economy.
“They’re not buying homes, and it’s not because they all can’t – they’re choosing to rent longer,” Pelletier said. “Even those who can buy homes want mobility. They’re afraid of losing their job and don’t want an illiquid asset that prevents them from leaving. They want the flexibility to pick up and move to where there is job growth.”
The future has a price tag
Most Americans appreciate the importance of saving for life’s big moments. In our survey, 32 percent of respondents said they would save for retirement if their debt was eliminated. Others said they would save for an emergency (15 percent), a new home (14 percent) or a college fund (12 percent).
Take Charge America’s Sullivan said the results reflect the goals people have long expressed to his group in counseling sessions.
“Saving for retirement, buying a home, saving for college – those have been the big three,” he said. “We went through a period of pessimism, where it was difficult for people to even think about that because times were so rough in terms of income and jobs. That’s probably better now.”
CreditCards.com commissioned Princeton Survey Research Associates International to obtain telephone interviews with 1,000 adults living in the continental United States. Interviews were conducted by landline and cellphone in English and Spanish by Princeton Data Source from Dec. 8-11, 2016. Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error is plus or minus 3.7 percentage points.
See related: What to know about debt consolidation