Personal debt in the United States has fallen by 25% in three years

American adults who have personal debt held on average $22,354 excluding mortgages at the beginning of the year, when inflation was already on the rise but before the latest peaks

MILWAUKEE, September 20, 2022 /PRNewswire/ — At the start of this year, the personal debt of American adults aged 18 and older was on a three-year downward trajectory, according to Northwestern Mutual 2022 Planning and Progress Study.

Among indebted American adults, they held on average $22,354 excluding mortgages in February when the research was conducted. At the time, inflation was rising, but that was before the most recent spikes in economic data. Nevertheless, the long-term trend line showed a 25% decline over three years.

Average amount of personal debt (excluding mortgages)

2019

$29,803

2020

$26,621

2021

$23,325

2022

$22,354

“With inflation rising at the fastest rate since the 1980s, many Americans have seen their savings begin to erode and their debt levels rise in recent months,” he said. Christian Mitchell, executive vice president and chief client officer at Northwestern Mutual. “It’s a tough time for consumers, but on the bright side, many people have reduced their debt over the past few years. It’s a good reminder that a solid financial plan must take into account both of what is happening now and what could be down the road.”

The trail effect
Debt can create a drag on a financial plan that can be very difficult to reverse. The research found that almost a third (32%) of Americans’ monthly income, on average, is spent paying off debt other than mortgages.

Excluding mortgages (18%), by far the main source of personal debt is credit cards.

Sources of personal debt

Credit card

20%

Car loans

8%

Personal student loans

8%

Education costs for children / family members

6%

Home equity loans / lines of credit

4%

More than half (54%) of respondents say that debt has a substantial or moderate impact on their ability to achieve financial security, and many Americans expect to stay in debt for a long time.

How long do people expect to be in debt

1-5 years

43%

6-10 years old

20%

11-20 years old

12%

For the rest of my life

12%

I do not know

13%

Debt has also caused people to pause on many of life’s most important milestones, including getting married, buying a home, having children, and saving for retirement.

Things people have put off because of debt

Make a major purchase

31%

Saving for retirement

20%

To buy a house

18%

To marry

8%

Have children

8%

“When debt is carefully managed, it can play a useful role in a long-term financial plan — but it’s a slippery slope,” Mitchell said. “It can be difficult to detect when healthy debt turns into runaway debt, and once that line is crossed it can be debilitating over a long period of time. A counselor can help you, whether it’s avoiding runaway debt in the first place or helping to get out of it once it’s set in.”

Americans prioritize paying down debt over saving
Between saving and paying off debt, 57% of people prioritize paying off debt, compared to 43% who prioritize saving.

“Everyone’s financial situation is different, but this conclusion pretty clearly reflects intentions,” Mitchell said. “It makes me optimistic that despite the challenges posed by inflation, people are focused on reducing their debt levels over time.”

About the Northwestern Mutual 2022 Planning and Progress Study
The 2022 planning and progress study was conducted by The Harris Poll on behalf of Northwestern Mutual and included 2,381 U.S. adults ages 18 or older who participated in an online survey between February 8 – 17, 2022. Results were weighted by census targets for education, age, gender, race/ethnicity, region and household income. Propensity score weighting was also used to adjust respondents’ propensity to be online. No estimate of the theoretical sampling error can be calculated; a complete methodology is available.

About Northwestern Mutual
North West Mutual helping individuals and businesses achieve financial security for over 165 years. Through a holistic planning approach, Northwestern Mutual combines the expertise of its finance professionals with a personalized digital experience and industry-leading products to help its customers plan what matters most. With over $561 billion in the combined company and customer assets, $34 billion in revenue, and $2.1 trillion with in-force life insurance protection, Northwestern Mutual provides financial security to nearly five million people with life, disability and long-term care insurance, annuities, and brokerage and advice. Northwestern Mutual ranked 97th on the 2022 FORTUNE 500 and was recognized by FORTUNE® as one of the “World’s Most Admired” life insurance companies in 2022.

Northwestern Mutual is the trading name of The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wis. (life and disability insurance, annuities and life insurance with long-term care benefits) and its subsidiaries. Subsidiaries include Northwestern Mutual Investment Services, LLC (NMIS) (Investment Brokerage Services), Broker, Registered Investment Adviser, Member FINRA and SIPC; Northwestern Mutual Wealth Management Company® (NMWMC) (investment advisory and services), federal savings bank; and Northwestern Long Term Care Insurance Company (NLTC) (long term care insurance). Not all representatives of Northwestern Mutual are advisers. Only representatives whose title includes the term “advisor” or who otherwise disclose their status as an adviser to NMWMC are accredited as representatives of NMWMC to provide investment advice services.

SOURCE North West Mutual


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John A. Bogar