Americans in debt are feeling more optimistic about paying it off than ever before. Check out our latest poll and find out why.
U.S. debtors are feeling mighty optimistic about getting out of debt these days.
According to CreditCards.com’s seventh annual debt-free poll, only 7% of debtors expect to die in debt.
That’s a dramatically lower percentage than in 2019 (25%) and 2018 (30%) – and even smaller than the previous low in 2013 (9%).
And only 7% of respondents said they didn’t know when they’d be debt-free, down from 2019 (41%) and 2018 (38%).
A strong economy boosts optimism about debt
Stocks hit numerous record highs this year, we recently hit the lowest unemployment rate in 50 years and we’ve enjoyed more than a decade of sustained economic growth, noted Ted Rossman, industry expert at CreditCards.com.
These positive stats have Americans feeling good about their debt levels as we enter 2020.
But while Rossman agreed this report is generally positive, he views the continued increase in credit card debt – as evidenced in Experian’s latest State of Credit report – as worrisome.
Credit card debt is the most common type of debt, and the average card interest rate is more than 17%, which is about four times higher than the average mortgage or auto loan.
Rossman said consumers should take advantage of the economic good times to prepare for the proverbial rainy day.
“Prepare for an eventual downturn by paying down your credit card debt now,” he said. “Strategies could include a balance transfer card, a side hustle, selling unneeded possessions and cutting expenses.”
Debt-free living poll: key findings
Here are some other significant results from our poll:
- Many debtors expect to be free in a short time: Of those surveyed, 45% expect to be debt-free within five years. Only 25% think it will take more than 10 years.
- Millennials feel they’ll be in debt the longest: Among those who expect to be debt-free at some point, the average timeline is nine years. Millennials have the longest projection of being in debt – 10 years on average.
- A large number of people are in debt: The survey showed 70% of U.S. adults have some sort of debt. That includes 78% of Gen Xers, 74% of baby boomers, 70% of millennials and 44% of Gen Zers.
- Credit card debt is the most common: Of all the debt respondents reported, credit card debt was the most common, held by 41% of all U.S. adults. But a whopping 81% of credit card debtors anticipate they will make significant progress paying down that debt in 2020. Other common forms of debt include auto loans and leases (26%), mortgages (26%), student loans (16%), medical debt (13%), personal loans (12%), home equity loans or lines of credit (6%) and payday loans (3%).
- Student loans and medical debt are the most pressing: Student loans and medical debt felt the most suffocating to respondents. Only 43% of student loan borrowers were optimistic they will significantly lower the balance in 2020 and 51% of millennials with student loans said they likely wouldn’t make a dent this year in what they owe.
- More consumers are just saying no to debt: Just 27% of U.S. adults said they plan to add to their debts in 2020.
The survey of 2,602 U.S. adults was conducted online between Nov. 27 and Dec. 1, 2019. See survey methodology.
The student loan bubble might soon burst
The student debt crisis is a bubble that will burst in the next five years, according to Benjamin Caldarelli, co-founder of Princeton College Consulting.
“A one-time jubilee – mass debt forgiveness – would be the biggest and best economic stimulus we can hope for,” Caldarelli said, “and after that, we need massive structural change to how we pay for education in this country.”
Rossman pointed out that because student loans are typically held by early-career workers with lower salaries, it makes sense that the loans feel like a giant mountain.
And medical debt can be exceedingly expensive, particularly if the debtor isn’t able to work for an extended period of time, Rossman added.
“Student loans and medical debt often have these in common: high amounts owed and lower incomes,” Rossman explained.
Just 23% of student loan borrowers surveyed were very confident they will make significant progress paying down their debts in 2020.
Rossman advised those with student loan debt – most of whom are millennials and Gen Zers – to keep plugging.
“If you stick to the standard 10-year repayment plan, you’ll still be quite young when they’re paid off,” Rossman said.
And student loan interest rates (particularly federal loans, which are currently at 4.53% for undergraduates according to the U.S. Department of Education) are relatively low — much lower than credit cards tend to charge, which is why credit card debt should be more of a payoff priority than student loans.
Young adults should also try to participate in their workplace retirement plans – at least up to the employer match amount, according to Rossman.
“Getting into the stock market early, when your money has decades to compound, is a wonderful thing – if you’re in your 20s, every dollar you set aside for retirement could grow to $15 or $20 by the time you retire,” Rossman said.
This expert thinks more consumers will die in debt
Jimmy McMillan, owner of Heart Life Insurance, said consumers’ optimism about not dying in debt is just a lot of wishful thinking – and that the facts tell a different story.
Though the most common debt in the poll was credit card debt, the second most common debt was home loans – and a mortgage doesn’t go away when someone dies, McMillan pointed out.
Very often, he said, other family members live in the home and the death of a mortgage payer leads to foreclosure or a sale.
So while we should be encouraged by consumers’ optimism, the reality is that everyone needs to have a plan for their debt, he said.
See related: Building a mortgage-worthy credit profile
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,602 adults, including 1,813 adults with personal debt. Fieldwork was undertaken online from Nov. 27-Dec. 1, 2019.