Earning a college degree paves the way for a successful career and life. While earning a degree can provide new opportunities, recent studies have shown that postsecondary education is a driving force behind the latest debt trends. To date, an estimated 44.2 million Americans are affected by the modern student loan debt crisis.
Of course, other factors contribute to this national debt epidemic. Mortgage loans, financing, and medical bills can all play a part in financial distress. To maintain your financial freedom, it’s important to understand how the latest American debt trends impact your daily life.
How Much Student Loan Debt is There?
Studies show that the national student loan debt in America currently sits at $1.5 trillion – far more than auto loans or credit card debt.
Much of this debt belongs to millennials and Generation Z. That said, even graduates who have been out of school for more than a decade face the same challenge. As of 2017, there are 29.1 million people under the age of 39 who have borrowed federal money, meaning 65% of Americans struggle to pay off student loan debt.
Fields of study also play a large role in adding to debt. Many students don’t think about how student loan debt could affect them in the long run. Because entry-level jobs require degrees to even get an entry-level position, they tend to sign up for more expensive degrees than they realize.
Some of the most expensive degree types include law, medicine, health sciences, and – surprisingly – Master of Arts degrees.
Student loan debt can fall under two types of lenders, federal and private. A federal or parent loan is funded by the U.S government and typically comes with benefits such as fixed interest rates and income-driven repayment plans. Private loans are made by privately-owned organizations and are typically funded by banks, credit unions, state-based firms or credit card companies. Private student loans can come with a variety of interest rates and terms. It’s important to understand what your interest rate means before taking out student loans.
Why is America in Debt?
As the prices for tuition continue to rise, so will the amount of total debt. While two-thirds of the nation is in debt, not all debt is bad.
To establish good credit, you must first use credit. Taking out a mortgage to buy a home or using auto loans to pay for a car is usually considered good debt. These assets retain value over time and making your payments on time will help build your credit history.
Bad debt comes into play if you purchase items that quickly lose value or do not generate long-term income. This includes debt from:
- Credit cards
- Payday loans
- Cash advances
These debt types typically come with high-interest rates, making them the quickest growing and most difficult to pay off.
The chart below lists some recent percentages of America’s overarching debt.
What are the Debt Repayment Options?
There are a few debt repayment options to consider if you are struggling with your finances. Check out our quick guide for specific types of borrowing.
Repay Student Loan Debt
There are several ways to customize your student loan repayment plans. Each option depends on what you can afford. Some of the most common plan types include:
- Standard plans
- Extended plans
- Income-driven plans
Student loan repayment plans determine the monthly amount that you pay, how many years it will take to pay back what you owe, and the total interest you will pay over the life of your loan. Everyone’s financial situation is different, so chatting with one of our debt coaches will help you figure out which plan is right for you.
Financing a car is another common source of debt in America. Many first-time borrowers may not even be aware that there is a slew of taxes and fees that add to your total loan amount.
To avoid becoming overwhelmed with monthly payments, you should familiarize yourself with auto loan basics before you sign up. Some of the most important areas to focus on include:
- Loan cost
- Down payment amounts
- Interest rates
- Terms and conditions of your loan
Whether you sign up for a loan from a dealership, bank, or online lender, the loans that you choose will rely on your monthly budget goals. Set up your monthly budget to determine how much car you can afford. That way, you’ll be sure to avoid falling behind on your car payments.
More expensive than a car loan, mortgages are also causing debt. While making monthly payments for a home might seem to only add to your already full plate, some options can help ease the stress of taking out such a large loan.
If you’re having trouble with your mortgage, you may be eligible to apply for deferred payments. This plan will help move some of the amounts you’ve missed to the back of your total loan, giving you more affordable monthly payments for a short time.
Repayment plans may also be negotiated for to simply increase your current payments until you catch up to your projected payments.
Refinancing is another option. Getting a new mortgage loan under new terms, monthly payments and interest rates can help you take control of the amount of money you owe and pay it off in a more affordable manner.
Credit Card Debt
Credit card debt has become a sweeping issue for more than 128 million U.S households. Luckily, there are a few strategies to help if you are having issues with credit card debt.
A debt avalanche focuses on paying off the credit card that has the highest interest rate first. Once the card is paid off, users can work their way down. This strategy can save people money on interest and help them get out of debt fast.
Whereas, a debt snowball suggests cardholders to pay off their smallest debts first. Doing so can encourage borrowers to continue making payments as they climb out of debt.
Need Help with Your Student Loan Debt or Other Debt?
Still not sure where to go from here? No matter what type of debt you are in, our expert coaches are ready to help you find the debt solution that works for you. Contact us today to learn how you can achieve financial freedom.