In Debt We (Dis)trust

Q: How much debt does the average American have?

A: The average American is nearly six figures in debt-$90,460 to be precise.

And debt continues to rise. Since 2019, mortgage, auto, student, and personal loans have reached record highs.

Student debt rose by 12%, the most of any debt.

Generations of Debt

Each generation is saddled by different average levels of debt.

At about $135,841, Gen Xers are in the most amount of debt.

Baby boomers, on average, have about $97,000 in debt.

Millennials have $78,000 of debt, $30,000 of which is student debt. Their average level of debt has increased the most since 2015 when they had just under $50,000 in debt.

Why Americans Are in Debt

The COVID-19 pandemic and the subsequent economic collapse are two of the biggest reasons Americans have record amounts of debt.

However, even before the pandemic, it was all but impossible to attend school and own a home without borrowing money and accruing personal debt.

Debt has become a shared condition, yet many Americans don’t know the best strategies to pay off their debt.

Instead, they resort to using too many credit cards, borrowing money from friends and family, and using cash advances, among other unhealthy spending habits that could lead them even further into debt.

How to Pay Off Debt

One way that consumers can pay off their debt is by taking out debt consolidation loans.

A debt consolidation loan is a form of debt refinancing. In other words, it’s a debt repayment strategy.

Banks, credit unions, and finance companies issue debt consolidation loans, typically at no cost. To qualify, consumers generally need to have good credit.

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When a consumer takes out a debt consolidation loan, they pay off two or more personal debts-typically unsecured debts-by consolidating them into one monthly payment, which the consumer pays for at a set interest rate.

Unsecured debt, otherwise known as “bad debt,” includes credit card bills and payday loans.

The goal of debt consolidation loans is to streamline the debt repayment process.

The Pros and Cons of Debt Consolidation Loans

You may be wondering about the advantages and disadvantages of debt consolidation loans.

For some consumers, in addition to streamlining the debt repayment process, debt consolidation loans may.

• Offer a lower interest rate.
• Lower monthly payments.
• Offer quicker payoff.

For other consumers, however, debt consolidation loans may.

• Increase interest rate.
• Add more costs.

Another potential con of debt consolidation loans is that they can make the debt repayment process look easier than it is. When this happens, consumers may come to believe that they have more money than they do and get even deeper into debt.

Ultimately, whether a consumer will benefit from debt consolidation loans depends on several factors, including spending habits, income, credit score, budget, family money, housing, and personal and financial goals.

Doing research and seeking help from financial advisers and other financial experts is crucial for consumers considering taking out debt consolidation loans.

Debt consolidation loans may pay off in the end, or they may do the very opposite.