Millennials’ Debt Situation Decent…Sort Of

With U.S. credit card debt at record highs north of $1 trillion and auto loan and credit card delinquencies standing at financial crisis-esque levels, debt in all forms is an increasing concern for clients of all ages.

Rampant inflation and surging interest rates will have that effect. Moreover, debt burdens imperil clients’ financial and personal wellbeing while having similarly adverse effects on retirement readiness. Clients want to feel wealth and they want security. Advisors also know that how clients perceive wealth and security often varies from one to the next. That’s not a bad, particularly not when there’s an evolving view of wealth – one that’s expanding well-beyond bottom-line financial concepts.

Regarding the topic of debt, it’s worth giving often criticized millennials some credit as 13% of that demographic are debt free. On the other hand, advisors should note that millennials remain prime targets for debt-reduction conversations and strategies.

Millennial Debt Tale of the Tape

While 13% of millennials are in fine fettle on the debt front, a recent LendingTree survey indicates that two-thirds of the demographic are contending with credit card obligations while another 36% are servicing student loan debt, though it’s possible that given recent headlines, the second percentage will soon decline.

It’s not just those elevated percentages that signal opportunity for advisors to add value. It’s millennials’ emotional state as it pertains to debt.

“The survey also found that these cardholders are not feel very optimistic about their ability to pay the debt off. Almost 25% expect to never be debt-free. Some millennials who do plan to pay off debt aren’t planning to do so any time soon,” according to LendingTree.

Making matters worse is the length of time many millennials expect it will take them to shed the burden of debt. Millennials that initially incurred debt at 24 years old believe they won’t be rid of those obligations until 49.

That’s massive amount of lost time, money and the opportunity costs are substantial. As advisors know, credit card debt is particularly problematic because the interest rates are variable. As LendingTree notes, the average credit card interest rate today is 17%, but new cards for borrowers with “decent” credit carry APRs of 15% to 24% or more.

More Debt Issues

The problem with one form of debt is that it often begets other debt. As much is highlighted by the LendingTree research, which indicates that 70% of people that have credit card debt have other forms of debt with auto at 57% outpacing mortgage at 50%.

As a result, many folks feel despair regarding their financial situations due to outstanding liabilities. Advisors can take steps to help with that situation and the legwork required isn’t exhaustive. Those ideas include budget building.

“A budget is basically a spending plan. It’s a strategy for how you’ll distribute the income you earn each month. Keeping track of where your money is going can help you curb overspending and find opportunities to put more cash toward debt. Consider using an online budgeting system like Mint or a simple Excel spreadsheet to track how much money is coming in vs. how much is going out,” concludes LendingTree.

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