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Credit Card Debt is the New Normal for Gen X Consumers

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Credit card debt

Do you take credit card debt for granted?

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You have to give Millennials credit for not using credit as much as their predecessors. A new study on debt and finances by Allianz Life Insurance shows that for Generation X (Gen X) consumers, debt is an accepted part of life and nothing to feel bad about - yet Millennials prefer debit or cash to get by. Baby Boomers also accept debt as inevitable and both demographics believe that their credit cards are essential to their way of life and don't mind carrying balances over. This is a disturbing trend that is unlikely to change anytime soon.

How much do people owe on credit cards?

Roughly half of Gen Xers and Baby Boomers surveyed classify their credit cards as a “survival tool.” Further, 43% of those surveyed agree with this statement: “lots of smart, hardworking people who are careful with spending also have a lot of credit card debt.” The study of 2,000 consumers - half in each demographic - found that Gen Xers average around $8,000 in credit card debt they carry month to month and pay interest on, compared with $6,000 for Baby Boomers.

How much other debt do these generations carry?

It would be one thing if plastic was the only debt being serviced, but both demographics are also saddled with many other liabilities. Gen Xers carry almost 40% more mortgage debt than Baby Boomers, owing $144k on their homes versus $90k for the older group. Their other debts are 45% higher and, in addition to credit cards, include an average of $12k in student loans compared to $5k for Baby Boomers - but the extra years of repayment can account for the added mortgage and school debt.

How does this extra debt affect Gen Xers?

Servicing these large debts, particularly high interest credit card debt, makes it more of a challenge for the Gen X group to save for retirement, so much so that 27% said they didn't know when they could retire or if they will ever retire. Among Baby Boomers, this sentiment was much lower with just 11% of respondents expressing concern over when they would be able to retire. What's more, 46% of Gen Xers admit to keeping a revolving credit card balance and 23% say this is why they don't save.

What does this debt mean?

Allianz VP of Consumer Insights Katie Libbe says, “Over the last three decades, there has been a collective shift in how people view debt – it's now perceived as a normal part of one's financial experience and that has fundamentally altered the way people spend and save. If Gen Xers continue to delay saving for retirement until they are completely out of debt, their nest egg is clearly going to suffer. For Gen Xers who are behind on saving, better debt management, with a focus on credit card spending, should be the first issue they address to get back on track.”

The long-term danger of credit card debt

If you are one of those dealing with a mound of credit card debt and neglecting your savings, you should rethink your approach. You may think it's better to service this plastic debt than to save because annual returns on savings are lower than credit card APRs, but this doesn't take into account the significant impact of interest compounding. And if you're only able to pay the minimum due each month on your credit cards, that's a red flag that you're in too deep.

If you're behind on your credit card payments, you should be aware that most card issuers are very aggressive in debt collection efforts and are very likely to sue to collect on past-due debt. If you're living paycheck to paycheck, are in over your head and looking for a solution, the clean slate offered by bankruptcy may be a good solution for you. Contact the Law Offices of John T Orcutt for a free consultation today. In North Carolina, call +1-888-234-4190 for an appointment in Raleigh, Greensboro, Durham. Fayetteville, Garner, or Wilson.

 

 

Sources:

Allianz Life Insurance Debt Study

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