Millennials struggle as average debt exceeds $100K

The average millennial in the U.S. owes $117, 000, according to the Real Estate Witch Millennial Debt Survey (June 2022). This staggering amount of debt is preventing many of them from saving for major adult milestones while also creating an opportunity for financial advisors.

The survey reports that nearly three-fourths of millennials (72%) have some form of non-mortgage debt. The most common type of debt owed is credit card debt, with 67% of millennials carrying a balance. Of those who have credit card debt, the average amount owed is $5,349. And nearly half of millennials with debt (48%) say they have student loans, with the average respondent owing $126,993.

About 63% of millennials believe it will take one to five years for them to pay off their debt, while nearly 1 in 10 thinks it will take more than 10 years. Approximately 1 in 16 (6%) does not think they’ll ever pay off their debt.

This heavy debt burden, combined with today’s high inflation, means that millennials are struggling to pay for basic expenses, the survey said.  For example, more than 1 in 4 (27%) say they can't afford to buy gasoline. That leaves little left over for millennials to save for major adult milestones.

Nearly 1 in 3 millennial renters (30%) don't think they'll ever be able to afford a home, while 1 in 4 (25%) says they can't afford children.  Failing to save enough is the No. 1 financial regret among millennials (37%), and 1 in 4 doubts they could pay for a $500 emergency expense out of pocket.

Steps for reducing debt

Brian Haney, founder, CEO of The Haney Company, offers three pieces of advice he gives to his clients and what he encourages consumers in general to follow as it relates to debt:

1. See debt for what it is. With very rare exceptions, Haney said, people get into trouble with debt because they don’t see it properly. Outside a mortgage and perhaps student loans, debt is often used because someone doesn’t have enough personal capital to pay for a good or a service at the time of purchase. This means the problem is not a credit problem, but rather a savings/lifestyle problem, he said.

Too many consumers have bought into the notion that it’s OK not to pay now, but to pay later, he added. While this may be OK in theory, it rarely ever works out in practice. Not having to budget and save in order to pay for things using cash on hand actually hurts one’s ability to understand the true value of something, since there’s no personal/financial pain involved in getting it. “This leads to accruing credit card balances, which, if not paid off entirely each month, accrue interest, which increases the cost of the item and further erodes your financial situation,” he said.

Over time, people find themselves in debt simply because they have developed the bad financial habit of immediate gratification, Haney said. “So recognizing this as just that: a habit helps empower you to overcome it by creating a new/better habit moving forward,” he added.

2. Be honest about your emotional connection to debt. Emotions cloud our better judgement, but we often fail to recognize their role in the bad habits we have developed. For example, he explained, you’ve accrued $25,000 of credit card debt in 18 months because you love taking trips with your college friends. Financially, he said, you haven’t been able to save enough to pay for these trips outright; so, you’ve always used your credit card and justified it because of the rewards points you get, the cash back from the credit card company, and the fact that you don’t want to miss these amazing moments with your dear friends.

“The problem is that the real reasons you’re doing this are likely because of the positive emotional gratification you receive from these experiences, along with being seen as someone who is financially well-off enough to take all these trips, along with the fear of not wanting to miss out, or of having to say “hey gang, sadly I can’t afford to make this one with you,” he said. None of these reasons are about money, he pointed out. “Until you address these strong emotional connections, it may be harder to truly change your financial habits and behaviors,” he added.

3. Determine a debt-repayment strategy that works for you. There are many very good suggested methods and approaches that one can take to reduce debt: from Dave Ramsey’s Debt Snowball, to paying off high interest debt first, or paying off the smallest balance first. But the answer to the question of which one is best is simple, he said. “Which fits your personality and lifestyle the best, and which is the one you’ll actually follow?”

There’s no magic formula that works for everyone but there is a strategy that works for you, he said. “Find out what tactics you can use that will help you begin the process of paying off debt, avoid using it inappropriately in the future, and chart a path forward to financial freedom and confidence.”

 More debt-reduction strategies

Winona Havir, executive vice president, business development, Educators Insurance Resource Services Inc., also shared a few steps millennials can take to lighten their debt load. According to Havir, they need to understand where they came from, honor their journey and have the courage to change their financial future by finding a trusted financial professional who will help guide them through their financial ups and downs.

“Our relationship to money is a very emotional journey and we all need a guide,” explained Havir. “Take advantage of a financial professional’s knowledge and expertise in navigating through these turbulent financial times,” she said.

A real-life example she shared is the work her agency does in helping people find Public Service Loan Forgiveness for their student loan debt. “You can see the weight of the world lifted off their shoulders when we show them how to navigate the process and get partial, or in some cases, all of their loan debt forgiven,” she said.

And from Bryce Sanders, president of Perceptive Business Solutions, Inc., we received more useful tips millennials can use to reduce their debt.

The debt millennials may be carrying could include student loans, credit card debt, mortgages and home equity loans, Sanders pointed out. In most situations, he added, here are some steps they can follow:

• Reduce expenditures and pay down principal.
• Prioritize debt by interest rate charged. Credit cards might be the highest, and a mortgage taken out five years ago might be the lowest.
• Direct extra cash to paying down the debt with the highest interest rate.
• Try to switch from a higher-rate credit card to a lower-rate one, using the savings in interest rates to pay down the balance.
• Prioritize using chunks of cash that come their way (e.g., bonuses, tax refunds) to pay down debt.
• Cut down on spending where possible.

“The average credit card rate is about 15+% according to WalletHub,” Sanders added.  “Your client needs to understand that the easiest way to "earn 15%" on their money is to stop paying 15% to their credit card company.”

The proprietary data in this study is from an online survey commissioned by Real Estate Witch. One thousand American millennials were surveyed on June 16, 2022. Each respondent answered up to 21 questions related to their finances, debt, and savings.

Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].                                        

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].