Personal Debt in America Had Dropped 25% in Three Years

Staff Report

Friday, September 30th, 2022

"With inflation rising at the fastest pace since the 1980s, many Americans have seen their savings begin to erode and their debt levels rise in recent months," said Christian Mitchell, executive vice president & chief customer officer at Northwestern Mutual. "It's a challenging time for consumers but on the bright side is that many people have been chipping away at their debt for the last several years. It's a good reminder that a strong financial plan must factor in both what's happening now and what could be coming down the road."

The Drag Effect 
Debt can create a drag on a financial plan that can be very difficult to reverse. The research found that nearly one-third (32%) of Americans' monthly income on average goes toward paying down debt other than mortgages.

Excluding mortgages (18%), the #1 source of personal debt by far is credit cards.

More than half (54%) of people say debt is having a substantial or moderate impact on their ability to reach financial security, and many Americans expect to stay in debt for a long time.

Debt has also caused people to hit pause on many of life's most meaningful milestones, including getting married, buying a house, having children and saving for retirement.

"When debt is carefully managed, it can play a helpful role in a long-term financial plan – but it's a slippery slope," said Mitchell. "It can be hard to detect when healthy debt turns into runaway debt, and once that line is crossed it can be debilitating over a long period of time. An advisor can help, whether it's by avoiding runaway debt in the first place or helping to get out of it once it's set in."

Americans Prioritize Paying Down Debt Over Saving 
Between saving money and paying down debt, 57% of people prioritize paying down debt versus 43% who put saving first.

"Everyone's financial situation is different, but this finding does reflect intentions pretty clearly," said Mitchell. "This makes me optimistic that despite the challenges inflation poses, people are focused on getting their debt levels down over time."