Common Mistakes that Will Keep You in Debt

American household debt hit a record $14.6 trillion in the spring of 2021, according to the Federal Reserve. The average American has $90,460 in debt, according to a 2021 CNBC report. That included all types of consumer debt products, from credit cards to personal loans, mortgages, and student debt.

One of the biggest mistakes made with money is not having a plan or budget in place. If you want to stop living paycheck to paycheck, then having a plan in place to save and spend is a must.

Average American Debt by Age

You’ve probably heard the saying, “You have to spend money to make money.” Economists debate that, but there’s little doubt that people spend more when they’re making more.

The average amount of debt by generation in 2020:

• Gen Z (ages 18 to 23): $16,043
• Millennials (ages 24 to 39): $87,448
• Gen X (ages 40 to 55): $140,643
• Baby boomers (ages 56 to 74): $97,290
• Silent generation (ages 75 and above): $41,281

Debt and Income

The wealthier you are, the more likely you will carry debt. Of course, the wealthier you are, the easier it is to erase that debt.

Snapshot of consumer debt:

Type of debt                Average debt in 2020

Credit card                  $   5,315

Personal loan              $ 16,458

Auto loan                     $ 19,703

Student loan                $ 38,792

HELOC                         $ 41,954

Mortgage                     $208,185

What are some things you may or may not be doing that keeps you in debt?

• Failing to budget.
• Not talking with your spouse about money.
• Borrowing funds to start a business.
• Using your credit cards to pay debts. Have you ever thought about the amount of credit card offers you get in a single month? From no interest for the first year to no interest for 18 months.
• Using credit to pay for vacations.
• Co-signing a loan. We like to help those we love, especially when they are making a necessary purchase. But when you co-sign a loan, you could be rejected for credit you need later. Their loan will be counted as your debt, and you could get turned down for being too risky to extend credit to.
• Only paying the minimum amount due on your credit cards. It’s tempting to only pay the minimum amount due on your monthly credit card bill, especially when money is tight. High-interest rates will keep your bill growing each month, so reduce spending in other areas and focus on paying off that credit card debt.
• Keeping the same spending habits. If your spending style has got you in debt, then expect to make some changes; otherwise, nothing will change. Remember that saying by Henry Ford? “If you always do what you've always done, you'll always get what you've always got.”

When you are consumed by debt, typically, stress and anxiety follow and it can feel overwhelming. Take a step back and determine to develop a plan, and talk to someone who can point you in the right direction.

Try to get rid of the thought process that you “deserve” that expensive indulgence. What you deserve is to stick to a plan and live stress-free. Buying something in the spur of the moment will only offer temporary feelings of escape and relief.

Spending money isn’t bad. Not having a plan and being frivolous is. Be mindful of your budget and look for ways to save. If you can’t pay cash, then ask yourself if you truly need it at this specific time, or is it something that can be pushed off until you do have the cash to purchase it.

When you are on the road to being debt-free, remind yourself it is similar to exercising or eating healthy. There’s no quick fix.

For helpful tips to build a successful budget click here.