Personal Finance News

Millennials carry an average of $27,900 in debt, not including mortgages, according to new data released today by Northwestern Mutual. Gen Z, the oldest of whom are now 22 years old, have an average debt of $14,700. Buzz Feed News reports: 

Having sizable debt at a young age “is the new normal,” said Chantel Bonneau, wealth management advisor at Northwestern Mutual. “There are lots of people who exit school, and before they start their first job, have debt. That is a different situation from 30 years ago.”

Millennials’ main source of debt is credit card bills, and Gen Z’s is student loans. In a previous poll by CreditCards.com, 40% millennials said the top reason they carried a credit card balance was daily expenses such as groceries, childcare, and utilities, and about 20% pointed to unexpected emergencies such as medical bills and car repairs. Bonneau said discretionary expenses such as vacations and eating meals out also contribute to credit card debt.

About 45% of millennials and 43% of Gen Z reported feeling guilty about their debt at least every month — more than other age groups. But debt is a major stressor across age groups. One-fifth of all respondents said their debt made them physically ill at least monthly, 45% said it made them anxious at least monthly, and 35% said they felt guilty once a month or more.

As Americans sink under medical expenses, debt collectors go to great—and sometimes strange—lengths to collect. Olga Khazan writes on The Atlantic:

Companies can try to collect on medical debt virtually forever. Although old debt is easier to escape in court, little prevents debt collectors from trying to collect on it. “Debt never dies,” says Craig Antico, a former medical-debt collector and a co-founder of RIP Medical Debt, an organization that buys and eliminates medical debt. Only Wisconsin, North Carolina, and Mississippi clear certain debts once they are past the statute of limitations.

Generally, hospitals seeking to get bills paid place accounts in a “waterfall” of collection attempts, Antico told me. At first, hospitals, or the collections agencies they hire, will approach debtors with  a “soft” collection: Did you misplace your bill? Maybe you qualify for charity care. “But then if people aren’t responding, it will get more stressful,” Antico said. A collection agency might report the amount owed to a credit bureau, or the account might be sent to an attorney to enforce collection. (A new proposed federal rule would prohibit debt collectors from calling more than seven times weekly about a debt, but consumer advocates told me this could still result in more than seven calls in a week, since each doctor’s bill can count as a separate debt.)

Eventually, collectors might opt to sue you, in which case they might be able to garnish your wages or put a lien on your property. Antico estimates, based on an ADP report, that about 1.5 percent of American employees have a garnishment on their wages for a medical reason.

You could be getting a 16% return on your money right now, and it’s not that hard to do. As Mark Cuban, the “Shark Tank” star, billionaire entrepreneur, and NBA franchise owner explains, just pay off your debts. Mitch Tuchman writes on MarketWatch:

Pay that off and you stop losing nearly 16% in compounding negative returns.

“The reason for that is whatever interest you have — it might be a student loan with a 7% interest rate — if you pay off that loan, you’re making 7%,” Cuban said.

“And so that’s your immediate return, which is a lot safer than trying to pick a stock, or trying to pick real estate or whatever it may be.”

Yet the cost of not paying off your high-interest debts is astronomical.

Let’s say you have exactly the typical American household credit balance of $6,929 and carry it for 20 years at 16%. You end up paying $135,038.

Now let’s say you invested that amount instead and earned 8.8% over 20 years. You end up with $37,486.

You should invest, the earlier the better. But, truthfully, the math strongly advises that you pay off any high-interest debt you carry as soon as humanly possible.