October 12, 2018
We all incur debt during our lives, but will we ever become debt-free? A significant number of people say no. According to a new survey by Northwestern Mutual, 13% of Americans expect to be in debt until they die.
The Depths of Debt section of Northwestern Mutual's Planning and Progress Study 2018 contains many other sobering debt statistics. The average debt among debt holders rose to $38,000 in 2018 – even though over half of respondents called debt reduction their top financial priority and approximately 20% of respondents allocate 50% to 100% of their income toward reducing debt.
It's surprising that more people don't expect to die with debt. Only 23% of survey respondents had no debt at all, down from 27% in the previous year.
Compare that with the 13% who expect to die in debt. Those figures imply that well over half of Americans expect to climb out of their existing debt and become debt-free before they die.
A 2017 survey by Credit.com and Experian suggests that optimism isn't warranted. Using 2016 data from Experian, the Credit.com survey found that 73% of Americans had outstanding debts upon death, close to the 77% in the 2018 study that currently have debt. Over two-thirds of the deceased had credit card debt – the most frequent type of debt by far – with an average balance of $4,531 upon death.
Granted, some people die earlier in life when debt is more frequently incurred, but these statistics still suggest far more than 13% of Americans will die with some form of debt.
Why don't more Americans succeed in getting out of debt before they die?
Some may take the fatalistic approach and decide that they just don't care. "Why not die in debt? I won't care when I'm dead." (You may not, but your descendants might. Not all of your debts will die with you). Others may be ignoring the debt statistics because they're just too horrible to contemplate. Still others graduated with excessive student loan burdens, or simply don't make enough money to cover basic necessities.
However, for many Americans, excessive debt comes from overspending and a lack of self-control. That's especially true of credit card debt.
Regardless of how you got into debt, there's only one reasonable way out – a budget that gives you a surplus at the end of the month and the willpower to stick to that budget. You can't pay down debts if you don't regularly have money left over to apply toward them.
Lay out your monthly expenses for the year, incorporating annual expenses such as taxes. Compare that with your income. If your income can't cover your regular spending, look for ways to cut back.
Next, extend that budget out over several years making assumptions on future expenses. Add in at least 5% to 10% of income throughout the year as miscellaneous unexpected expenses. This will give you an idea of cash flow over time and a rough idea of the savings required.
Do you want to die debt-free? It's possible, but it requires careful budgeting and controlled spending. Take on major debts such as mortgages and auto loans with a reasonable plan to pay them off, and try not to charge more on credit cards than you can afford to pay off at the end of the month.
If you don't care about a debt-free death (or life), that's fine. Just be considerate and make sure that your spouse and children are on the same page.
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.
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