Personal debt still affects financial decisions, even after it declined

The amount of personal debt among U.S. adults has declined by 25% over the past three years. Among those with debt, the average amount excluding mortgage is $22,354, according to Northwestern Mutual’s 2022 Planning & Progress Study.

“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,” says Christian Mitchell, the company’s executive vice president and chief customer officer. “It’s a challenging time for consumers but 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.”

Debt can reduce the ability of consumers to achieve other financial objectives. Americans pay an average of one-third of their monthly income on debt other than mortgages, led by credit card debt:

• Credit cards, 20%
• Car loans, 8%
• Personal education loans, 8%
• Education for family members, 6%
• Home equity loans and credit lines, 4%

More than half 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:

• 1 to 5 years, 43%
• 6 to 10 years, 20%
• 11 to 20 years, 12%
• For the rest of their life, 12%

Debt can cause consumers to delay purchases or investments:

• Making a significant purchase, 31%
• Saving for retirement, 20%
• Buying a home, 18%
• Getting married, 8%
• Having children, 8%

“When debt is carefully managed, it can play a helpful role in a long-term financial plan — but it’s a slippery slope,” Mitchell says. “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.”

Read more: Average millennial owes more than $100,000 in non-mortgage debt, survey finds

Balancing debt reduction and saving money can be challenging. Fifty-seven percent of people prioritize paying down debt, while 43% put saving first.

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