Managing Debt – By the Numbers

By FINRA Investor Education Foundation Staff

Managing debt is a major concern of many Americans. Nearly four out of five Americans carry at least one of the following types of debt measured by the FINRA Foundation’s 2015 National Financial Capability Study (NFCS): mortgage or home equity loan; credit card balance; auto loan; student loan’ non-bank borrowing; or unpaid medical bills. And 40 percent of Americans reported thinking they “have too much debt right now.”

That rate was even higher among 18–34 year olds, the millennial age cohort that most represents military members; 45 percent of this group believes their debt load is too high. And it’s slightly higher still for gen Xers (ages 35–54, a group that represents “senior military” members). This shouldn’t be surprising, as these are the Americans most likely to be carrying mortgages while saving for or putting children through college. Relatively fewer baby boomers (ages 55+)—29 percent—thought their debt load was too high.

Student loan debt continues to weigh down the younger cohorts; 45 percent of millennials responding to the NFCS carried some level of student loan debt. Students enrolled in four-year colleges or universities were much more likely than those currently enrolled at two-year community colleges or vocational/technical schools to have a student loan for themselves (60 percent vs. 42 percent).

Alarmingly, the research indicates that many students take on high levels of debt without giving much thought to how they might pay it back. More than half of students who took out student loans never tried to figure out how much their monthly payment would be. Further, when asked “if you could go through the process of taking out loans to pay for your education all over again, would you take the same actions or make a change,” 53 percent indicated that they would make a change.

Although age can influence which debt products different groups use, credit cards remain widely popular among all cohorts. Most Americans—77 percent—have at least one credit card; 26 percent have four or more cards. The upside is that even with all of those credit cards in circulation, 52 percent of card holders reported paying their credit card balance in full month to month during the preceding year. This was up from 41 percent in 2009 and 49 percent in 2012. But nearly half of those surveyed still carried a balance on their credit card(s) and were charged interest, and nearly one in three made only the minimum payment during some months.

Besides credit cards, use of debit cards and prepaid debit cards is widespread among younger Americans. Only 10 percent of boomers use reloadable prepaid debit cards, compared to 39 percent of Americans between 18 and 34. These products have come under regulatory scrutiny in recent years. According to the Consumer Financial Protection Bureau, these reloadable prepaid cards can come with fees, which soon must be disclosed by the vendor. Common fees may include:

  • Monthly fee
  • Transaction fee
  • In-network / out-of-network ATM fee
  • Balance inquiry fee
  • Cash reload fee
  • Paper statement fee
  • Decline fee
  • Additional card fee
  • Inactivity fee
  • Card-to-card transfer fee
  • Bill payment fee
  • Card replacement fee
  • Foreign transaction fee
  • Card cancellation fee

Customers should be aware of their rights using these newer prepaid cards, and recognize that they may have to pay a number of fees to use them.

Although credit products evolve, and the need for credit varies through stages of life, the basics of managing credit and debt never really change:

  • Borrow only for needs, not wants.
  • Borrow the smallest amount you can for the shortest period of time.
  • Shop for the lowest interest rate.
  • Be aware of the total costs of any debt you incur, including all fees.
  • Make all payments on time and in full.
  • If you think you have too much debt, you probably do.

For more information regarding managing credit and debt, visit Credit and Debt.

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