While most people like to think that things were much better before the pandemic, in certain aspects, they weren’t at all. Case in point, consumer debt.
Before the COVID-19 pandemic, the average American carried $90,000 in debt, according to Experian research.
How much debt you have depends on several factors, including income bracket, ethnicity, education, and many more. However, one of the biggest factors is age. People in their 20s and 30s are far more likely to have student loans than those in their 50s.
But at what age should you be free of debt? In your late 30s maybe? The mid-40s? Or is it in the early 50s, perhaps? We’re about to find out.
Major Sources of Debt in America
These days, it seems like everyone is in debt. With the state of the economy, it certainly isn’t surprising. Reasons for this range significantly. Let’s take a look at some of the biggest sources of debt in the United States:
Money management is a skill that you need to learn as early as possible. Bad budgeting skills can land you in a lot of debt. To improve money management, you need to analyze income constantly. That way, you’ll be able to adjust your spending habits properly.
Divorce is never pleasant. It’s also one of the main causes of debt in the United States. Between hiring legal professionals and the settlement, it can be a pricey lifestyle change. If you’re still not married, and you want to avoid this pitfall, you should consider signing a prenuptial agreement.
Before making any purchase, stop to think if you can afford the item in question. Never pay more than you have. It’s simple as that. In case using your credit card isn’t avoidable, try to only buy things that can be paid off within the same month.
The Average Debt by Age
It’s a safe bet that if you’re reading this, you have debt.
How much debt do you have?
When you have debt, it’s better to compare yourself to other people in your age group than to the average American consumer.
Where you are in life impacts how much debt you have, significantly. Therefore, you should only compare yourself to people in a similar stage of life.
Below, you can find a breakdown of the average non-mortgage debt by age in the US:
- 18 – 24-year-olds = $11,000
- 25 – 34-year-olds = $27,000
- 35 – 49-year-olds = $33,000
- 50 years or older = $26,000
When can you hope to pay off your debt?
Realistically, you can hope to pay off your debt by 45, according to Shark Tank’s Kevin O’Leary. At 45, you’ll enter the second half of your professional career and you’ll be able to ramp up your savings for retirement to ensure a comfortable life.
How to Be Debt-Free by 45
How can you pay off your debt by the age of 45? You need to take a proactive approach. People who have paid off their debt early would advise you to come up with an investment plan, and invest your money wisely.
Of course, making smart investments takes knowledge. To gather that knowledge takes time and patience, not to mention money. But it certainly isn’t impossible. Here are a few ways you can tackle debt and be free before you enter your 50s (https://time.com/nextadvisor/investing/retirement/investing-paying-off-debt/):
- Create an investment plan as soon as possible. Streamline your accounts, automate where you can, and create a monthly budget before you get started. If you can’t pay all of your debt right away, start with the most pressing one, like high-interest credit cards
- Try to approach investing with a sense of urgency. Your goal isn’t only to pay off your debt but to start building wealth early and to retire at a relatively young age. Create new spending habits, to make sure not to create any more debt
- Diversify your investment portfolio as much as you can. Remember, even though a retirement plan is a good place to start, investing should be exciting. Therefore, diversify your portfolio. Find investments that are meaningful to you
Get Out of Debt and Start Living Free
If you’re in your late 20s and you have a significant amount of debt, there’s no reason to panic.
There are hundreds of thousands of Americans in the same situation. Car payments, mortgages, and student loans all cost a lot. But you can pay them off earlier than you think.
Image credit: [karolina grabowska]