Award-winning writer covering consumer and small-business credit cards.
Many Americans in debt either have no idea when they’ll break free from it or have resigned themselves to owing money for life.
A new poll by CreditCards.com found over 65 percent of U.S. adults with debt don’t know when or if they’ll ever get out of it. That group includes 41 percent who don’t know when they’ll pay off what they owe and 25 percent who expect to carry their debt to the grave.
These numbers have fallen slightly since last year, when 68 percent of U.S. adults had no idea when or if they’d get out of debt, including 30 percent who predicted they would die in debt.
The most common debt amongst U.S. consumers is a mortgage (54 percent) followed closely by credit card debt (53 percent). Auto loans were the third most common type of debt (47 percent) while fewer people owed student loans (21 percent), medical debt (13 percent) or a personal loan (11 percent). Fortunately, less than one percent owe a payday loan.
“I’m not surprised that number is so high,” Scott Hoyt, senior director at Moody’s Analytics, says of the percentage of consumers who don’t know if or when they’ll pay off what they owe. “A lot of folks don’t really have a plan for getting out of debt,” he says.
See related: Will 2019 be the year you finally get out of debt?
Many see debt freedom in their future
The good news: not everyone expects to lug their debt around forever. In fact, over one-third of Americans in debt (35 percent) see debt freedom in their future.
The survey of 1,000 U.S. adults, conducted online from Dec. 7-9, 2018 (see methodology) also found:
- Consumers plan to carry debt into middle age. When asked to predict how old they’ll be when they get out of debt, those who answered gave an average age of 53. That was down slightly from 54 last year.
- Millennials expect to be in debt longest. Millennials, who are now 18 to 37 years old, said on average they will get out of debt at age 43. Generation Xers, who are now 38 to 53, said age 54. And baby boomers, ages 54 to 72, guessed an average age of 66.
- More middle income households carry card debt. Of consumers in households that make $30,000 to $49,999 per year, 71 percent owe credit card debt, compared with an average of just over half (53 percent) across all income brackets. Why? Lower income households might have a harder time getting approved for credit due to stricter lending standards in recent years, while higher income households might be able to pay off debt more easily, Hoyt says. “It’s the middle income folks who are in the most difficult position,” he says.
- Higher earning households will spend longer in debt. However, Americans from households that bring in $50,000 or less per year predicted they will be out of debt at an average age of 47. In contrast, debtors from households making $50,000 or more gave an average age of 55.
- Cardholders plan to attack credit card debt. Do consumers have a plan to get out of debt? That depends on the type of debt. When asked how they’re handling credit card debt, 80 percent of consumers polled said they have a strategy for paying their balances down to zero. Amongst those who don’t have a plan to tackle their credit card debt, though, 42 percent gave this as their reason: “I just don’t know where to start.”
Consumers rack up debt in many ways
Being deep in debt with no plan to get out of it affects your finances and ultimately your prospects for a comfortable retirement, says Steve Rhode, a consumer debt expert known as “The Get Out of Debt Guy.”
There are many circumstances that can lead to too much consumer debt, says author and financial expert Harrine Freeman. Some people overspend on a purchase like a vacation or a new TV, some get hit with a medical crisis and others may have an emergency they lack the savings to cover.
“Maybe the boiler went out or they need a new roof,” Freeman says. “There are tons of reasons why people get into debt.”
Of course, type of debt matters when considering the negative effect on your life, and some types of debt are worse than others.
“I would look at dying with a mortgage on your property as different than dying with $50,000 in credit card debt,” says Douglas Boneparth, co-author of “The Millennial Money Fix: What You Need to Know About Budgeting, Debt and Finding Financial Freedom” and president of BoneFide Wealth, a financial advisory firm.
“Not everybody is going to pay off their mortgage in their lifetimes, and people use the equity in their homes in various ways,” he says.
But that debt you racked up on a card to buy a new outfit or gadget is a different story.
“Consumer debt is a massive killer for all other financial goals,” Boneparth says.
Getting out of debt starts with a plan
“You definitely have to have a plan to get out of debt,” Freeman says. “You can’t just wish on a star.”
Do you want to create a debt repayment strategy that doesn’t rely on wishful thinking? Here are four ways to plan to get out of debt sooner rather than later:
1. Rev up your debt payments
Among survey respondents, the most popular strategy for getting out of credit card debt is paying more than the minimum due. In fact, 95 percent said this is their strategy for nixing card debt. That includes 69 percent who said their plan is to pay substantially more than the minimum monthly payment and 26 percent who bank on paying a little more. This is by far the smartest strategy for getting out of credit card debt, Freeman says: “Just paying the minimum monthly payment will keep you in debt for a long time.”
2. Blitz interest with a balance transfer
If you have credit card debt, like over half of Americans surveyed, consider a balance transfer card. Many consumers don’t know about balance transfer cards, and only 15 percent of those polled cited transferring a balance as their get-out-of-debt strategy.
These cards allow you to move a balance from a high interest card to one that offers zero interest for an introductory period, typically 15 to 21 months. Many of these cards come with a balance transfer fee, usually about 3-5 percent of the balance.
If you use a balance transfer card, calculate how much you need to pay each month to pay off the debt during the promotional period, Freeman says. Then make those payments diligently so you can wipe out the debt before the interest rate spikes. “You really have to be disciplined,” she says.
3. Boost your income to pay debt faster
For those who lack a plan to pay off credit card debt, the most common reason (64 percent) was, “I don’t make enough money.” While some people can cut spending enough to make a big dent in their debt, others may need to find a freelance gig, side hustle or second job to increase income and speed up debt repayment, Boneparth says.
But don’t automatically dismiss the “latte” factor, no matter how little you make.
“There are areas where people can reduce spending no matter their income,” Freeman says.
4. Get help from a debt pro
Credit counseling is an underutilized strategy for getting out of debt, the poll found. A little over 3 percent of consumers in debt said they planned to visit a debt or credit counselor as their strategy for getting out of debt.
A credit counselor can look at your financial big picture, help you create a budget and even offer a debt management plan, with lower interest rates and smaller monthly payments than you have now, to help you pay off multiple debts.
“When you’re sick, you go to a doctor, and if your car breaks down, you go to a mechanic,” Freeman says. “If you’re in debt, it makes sense to go to a credit professional.”
The ultimate goal should not necessarily be to get 100 percent out of debt, but to get your debt under control and save for emergencies and retirement, Rhode says.
“When people say they want to be out of debt, what they really want is to be out of stress and fear.”
Most of the study was conducted online in Ipsos’ Omnibus using the web-enabled “KnowledgePanel,” a probability-based panel designed to be representative of the U.S. general population, not just the online population. The study consisted of 1,000 nationally representative interviews conducted between Dec. 7-9, 2018 among adults aged 18 and over. The margin of error is plus or minus 3 percentage points. Select data points came from Research Now SSI, which surveyed 997 U.S. adults online in early December.