The Threat of Debt

Following up on my previous post about paying for college and the realities of student loan repayment, today I would like to share some new survey information about the longterm effects of significant debt, student loans and otherwise. The findings are both interesting, surprising, and maybe even shocking.

Specifically, this survey involves responses from Millennials. If you’re like me, you may be confused about which generation is known by what moniker. So, to set the scene for this survey, let’s take a look at who Millennials are. Here’s one way to consider them:

… The term Millennials generally refers to the generation of people born between the early 1980s and 1990s, according to the Merriam-Webster Dictionary. Some people also include children born in the early 2000s. 

The Millennial Generation is also known as Generation Y, because it comes after Generation X — those people between the early 1960s and the 1980s. The publication Ad Age was one of the first to coin the term“Generation Y,” in an editorial in August 1993. But the term didn’t age well, and “Millennials” has largely overtaken it. But the terms basically mean the same thing. 

This age group has also been called the Peter Pan or Boomerang Generation because of the propensity of some to move back in with their parents, perhaps due to economic constraints, and a growing tendency to delay some of the typical adulthood rites of passage like marriage or starting a career. …
So, you can see that Millennials can be fairly recent college graduates or even current college students. The one thing that many (maybe most) of them have in common is debt generated by credit cards and student loans. Now, to those findings …

new survey from Credible finds that millennials (lower-case “m,” as it refers to Generation Y) with credit card balances think their debt is scarier than climate change, the threat of war, and even dying. Here are some more surprising results from this survey:

  • 33% said that their credit card debt is scarier than war, climate change, never retiring, and even dying.
  • $5,290: that’s how much credit card debt the average millennial has.
  • 66% said they have credit card debt because of emergency expenses or one large purchase.
  • 80% said that they are confident they will be able to pay off their credit card debt within the next year.

Personally, I think the result showing that “80% said that they are confident they will be able to pay off their credit card debt within the next year” is way off base. Oh, the survey results are no doubt accurate, but the 80% who say that they will pay off their credit card debt within the next year are deluding themselves, in my humble opinion. The analogy is someone who needs to lose weight during the year-end holiday season. They confidently proclaim, “Starting January 1, I’m getting on the wagon. No more bad food for me! I’ll lose this weight next year!”

Same thing with credit cards. Without either an iron will’s discipline or an unexpected influx of cash, it’s highly unlikely that the behaviors that created the debt can be changed that quickly. There has to be a revelation that inspires a significant change in thinking and behavior.

But I digress. Back to the survey, highlighting some quotes:

It’s hardly a surprise, given Americans hold nearly $800 billion in credit card debt. Close to half of American households carry a balance on their credit card — $5,700 on average.

To put some context around these numbers, and to understand how credit card debt affects millennials’ daily lives, we conducted a survey asking respondents about their feelings and behaviors around credit card utilization. …

… we targeted respondents who were 18-34 years of age and carried credit card debt. We’ve analyzed the results of the survey and compiled some key findings:

  • Millennials with credit card debt find their debt to be scarier than climate change, the threat of war, not being able to retire, and even dying
  • The average credit card balance among all 500 respondents surveyed was $5,290, with nearly one in five millennials saying they needed to rely on their credit card(s) to supplement their monthly income
  • Millennial debt holders found the scariest aspects of their credit card debt to be the fear of accruing interest (32.6%) and making their monthly payments (32%)
  • Despite their balances, 80% of millennials surveyed are at least somewhat confident they will be able to pay off their debt in the next year
  • An overwhelming majority said they planned to change their spending habits in order to get a handle on their debt
 One point to remember here is that some of this credit card debt may be leftovers from college costs, such as tuition (yes, some students use credit cards to pay portions of their tuition), books, food, and related campus living expenses. The lure of the ease of paying by credit card is far too hard to resist at times.
I have even spoken with students who told me that using their credit cards to pay for something somehow makes it seem as though they’re not actually paying for the item or service since they are not removing cash from their purses or wallets. That may be like verbally ordering the calories to leave that big piece of chocolate cake before you eat it. The illusion effects reality.

There’s no doubt about it:

Millennials are terrified of credit card debt.

We asked survey respondents to select which of a number of options was the scariest in their daily life, and more than 33% indicated it to be credit card debt — far greater than the percentage of respondents who were scared of dying (20.4%), or afraid of the threat of war (16.8%).

Perhaps surprisingly, given its prominence in the media, climate change wasn’t an imminent concern, with only 6.4% of respondents selecting this option. Even having to work forever wasn’t too intimidating, with just 11% of respondents selecting ‘not being able to retire’ as their biggest fear.

Credit cards are like an addictive drug. The element of fear may be a result of Millennials being afraid of not being able to use them because of the credit limits they may have exceeded. Of course, credit ratings are the benchmark by which borrowing power is judged. Older Millennials who may want to invest in a home have to face the moment of truth when a bank tells them whether or not they are qualified for that loan.
With too much debt, credit card or otherwise, they won’t be able to get the loan. Or, even if they are approved, it’s likely that they will not have the cash reserves to make the required down payment, which can be as high as 20% or more. Thus, the drug analogy. Credit cards: Can’t with with ’em; can’t live without ’em. Rock and hard place. Etc.
… Digging down even deeper, we asked respondents why they were in credit card debt in the first place. Despite some common misconceptions that credit cards are just for discretionary or irresponsible spending, the majority of respondents reported emergency expenses (34%) or a large one-time purchase (31.8%) as their reason for carrying debt. Only 4.0% reported choosing not to pay off their debt despite having the resources to do so. …
Summarizing, then:
… While credit cards can be a powerful tool for building your credit, and an invaluable resource in an emergency, getting out of credit card debt can be terrifying. This data demonstrates exactly that point, finding that the most pressing day-to-day concerns of many millennials are related to credit card debt. .
Obviously, I’ve only skimmed the surface of this in-depth survey. Check it out for yourself to see if you fit into any of the demographic outcomes. There are some interesting charts and graphs.
And while you’re at it, take a careful inventory of your debt categories. Do you have a mortgage, a car loan, student loans … ? As I mentioned before, don’t be one of those hanging onto hope that the Government will somehow rescue you from your college loans. Use your “higher” education to understand your obligations. Your credit rating will thank you.
Be sure to check out all my other articles on the College Confidential Web site.