Average Debt By Age: How Do You Compare To Your Age Group?
Knowing how you stack up against the average debt by age can help you manage your finances.
Contributing Writer at Tally
October 2, 2020
The average American carries more than $90,000 in debt, according to 2019 the Consumer Debt Study by Experian. This adds up to more than $14 trillion in total consumer debt.
But not everyone has $90,000 in debt.
The amount of debt you have corresponds to different factors, including age. For instance, Americans in their 20s, 30s and 40s are more likely to carry student loan and mortgage debt than retirees.
Knowing the average debt by age allows you to see how you stack up against others in your age range, providing a gauge so that you can determine how quickly you need to take action to improve your personal finances.
In this guide, you’ll learn about the primary sources of debt for people in different age groups, the average amount of debt for those age groups and what you can do to improve your finances.
What are the major sources of debt?
Debt occurs when you owe money to a lender. Common types of debt include:
Home equity lines of credit
Debt is not always bad. Debt can allow you to do things like put a roof over your head, buy groceries, purchase a car and get an education.
However, debt is also risky because it comes with interest. When you fail to pay off a credit card or loan balance in full, interest compounds. As a result, debt increases quickly, which makes it harder to pay off. If you don't practice responsible personal finance habits, the amount of debt you owe could become a serious burden.
What is the average debt by age?
If you have debt, it's better to compare yourself to the average debt by age bracket than to U.S. consumers as a whole.
Where you are in life directly impacts how much debt you should expect to have. Comparing yourself to those in a similar stage in life gives a better depiction of how you stack up. Below is a breakdown of the average amount of debt by age in the United States.
18—24 year olds = $9,593
The average debt for the "Gen Z" age group is $9,593, according to Experian. Student loans are the primary source of debt for this age group, followed by credit card debt.
Of the different types of debt, student debt is one of the better options. It tends to be low cost, meaning it has a low interest rate. Student loans also come with tax advantages. The money is also going toward an education, which can help secure a well-paying job after graduation.
25—34 year olds = $78,396
Credit card debt is one of the worst types of debt to have. Credit cards often have high interest rates that can cause debt to snowball.
Younger millennials carry an average debt of $78,396, primarily due to credit card balances, according to Experian. Only 16% of those in this age group have student loan debt. Furthermore, only 3% have mortgage debt.
One of the reasons for this credit card debt is expenses. In this age group, expenses tend to increase drastically due to lifestyle changes, such as having children or pets. As a result, disposable income shrinks. When disposable income shrinks faster than salary increases, people may take on debt.
35—49 year olds = $135,841
Primarily because of home mortgages, older millennials in this generation maintain a higher average debt, according to Experian. Credit card debt is the next main source of debt, followed by education and auto loans.
Some financial experts, like Kevin O'Leary, assert that you should be debt-free by age 45, which he considers middle age.
“When you're 45 years old, the game is more than half over, and you better be out of debt because you're going to use the rest of the innings in that game to accrue capital,” O’Leary said in an interview with CNBC Make It.
It’s a lofty goal, especially when considering that it includes mortgage payments. But even if people aren’t able to change their mortgage or car payment amounts, they can cut down on their average credit card balance and the subsequent interest. (More on this later.)
50 years or older = $96,984
Baby boomers have an average debt of $96,984, according to Experian. Mortgages, credit card bills, and auto loans are the three main debt sources for those in this age group.
Although this is less than the average debt of those 35—49, it could still spell trouble for two primary reasons. One, baby boomers (those 50 and older) are moving toward retirement. Carrying debt at this age could make retirement more challenging. Boomers will need to work longer than planned to improve their net worth and enjoy a comfortable retirement.
Furthermore, older people must also factor in health care costs. Along with the costs of medications and doctor visits, an unexpected health care bill could increase debt. (Although unexpected healthcare incidents could arise at any time, there’s more risk as you get older.)
If household income goes toward medical expenses, people could fall behind on other payments, which drives interest rates up and costs more in the long term.
What can you do if you find yourself in debt?
If you have debt, you’re likely wondering how you can reduce the amount you owe. And if you carry more than the average debt for your age group, it may be time to work toward reducing that number now. Below are some tips to help lower your debt, including how to improve your credit score and save money.
Know your debt-to-income ratio
Understanding your debt-to-income ratio (DTI) will paint a clear picture of how debt is working against you. Lenders use this ratio to determine whether you qualify for loans. They look at both your front-end DTI and back-end DTI.
Front-end DTI = Housing expenses (mortgage payments and insurance) ÷ gross income
Back-end DTI = Gross income ÷ spending on optional debt (such as credit cards and auto loans)
Lenders want to see your front-end ratio no higher than 28%, and the back-end ratio no higher than 36%. Taking the time to calculate your debt-to-income ratio will allow you to get a better view of where you stand financially.
Your debt-to-income ratio may also be a better indicator of your financial situation than the average debt by age. For example, an American household with $36,000 in debt but $200,000 in annual income is likely in a better financial position than one with $36,000 in debt and $75,000 in yearly income. Your DTI can help you determine your financial standing.
Use a balance transfer card
If you carry a high average credit card debt, consider using a balance transfer card. A balance transfer card typically offers 0% APR (annual percentage rate) for the introductory period. You can transfer your balances from your high-interest credit card onto the balance transfer card with a 0% interest rate.
Even if you continue to make minimum monthly payments on your balance transfer card, you won't have to worry about collecting interest during the intro period. A balance transfer card provides breathing room, giving you time to pay down high-interest credit card debt.
Use a line of credit
If you don't want to open a balance transfer card and you have a good FICO credit score (680 or above), you can open a line-of-credit service with Tally.
Tally is an automated credit card payoff app that combines all of your cards into one monthly payment. Tally ensures that you never miss a payment and pays down your debt quickly and efficiently by offering a low-interest line of credit, which helps you start saving money immediately.
Get out of debt and start saving today
If you have debt, there's no need to panic. Many American households carry debt. With things like student loans, mortgages, car payments, and everyday expenses, taking on debt at some point in your life is inevitable.
However, with a bit of work, you can move toward financial freedom and debt-free living. You can start by understanding how you compare to others in your age group and similar financial situations. Then, you can learn how debt impacts you. Using tools like the debt-to-income ratio will help you better understand your financial health.
Once you know your DTI, you can start paying down debt by using a balance transfer card or a credit card payoff app like Tally. By doing so, you can work toward becoming debt-free and having the financial flexibility to live comfortably.