Generation Z refers to those born between 1997 and 2012. That puts those that have reached the age of majority between the ages of 18 and 28. Most Gen Zers in this age range are experiencing numerous financial “firsts,” from their first jobs and paychecks to their first experience with budgeting and debt.
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Unfortunately for those in Gen Z, this volatile financial combination has resulted in a surge in personal loan debt. Here’s a look at the data behind the rising debt levels for Gen Zers, along with some potential ways out if you’re one of the ones falling behind financially.
How Much Debt Do Gen Zers Have?
According to a poll by Talker Research for Newsweek, Gen Z leads the nation in terms of total average personal debt. Poll data shows that the average Gen Zer has a whopping $94,101 in personal debt, far above both millennials ($59,181) and Gen Xers ($53,255).
Considering their young ages, this signifies a big problem. Starting life behind a mountain of debt means that other financial goals, such as buying a home or building a retirement nest egg, necessarily get put on the back burner — potentially, putting them out of reach entirely.
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How Does This Compare With Other Generations?
Coming out of the pandemic, credit exploded across all generations. Credit card debt balances, for example, rose by 33% over the past five years. But personal loans have simply exploded, with balances rising by 64% over the same time frame.
Now, roughly 9% of Americans have a personal loan, with many having more than one. Overall, the average amount owed on a personal loan is $11,652, according to a U.S. News analysis of industry data from TransUnion, Experian, the Federal Reserve and the National Credit Union Administration. This is up from just $8,758 five years ago. Credit reporting agency Experian sees the debt level even higher, as much as $19,014 per personal loan as of Q3 2024.
What this means is that Gen Zers aren’t alone in their rising debt levels. However, they are at the leading edge of the debt explosion — and not just in terms of total debt. The same Experian study showed that from 2022 to 2023, personal loan balances among Gen Z borrowers grew by the fastest of any generation, at 13.4%. This means that the debt problem seems to be increasing, not decreasing.
What Are the Reasons Behind the Rising Debt?
Gen Zers are at that precarious age, 18 to 25, when incomes are usually lowest. This can make it hard for Gen Zers to make ends meet, particularly in an economy with high rents, unaffordable housing, high interest rates and inflationary pressures.
Some Gen Zers may see a personal loan as the only way to get by when expenses exceed income. Unfortunately, it can be building a lifelong problem with debt and budgeting that can be difficult to get out of.
So, this leaves many Gen Zers at a crossroads. On the one hand, it’s somewhat understandable that those just starting their financial lives might struggle to get ahead, perhaps taking out loans to get by. The problem is that once someone is in debt, it can be hard to get out.
So, if at all possible, avoiding debt is the best option. But if you’re a Gen Zer already in debt, what are the next steps?
What Are Some Ways Out?
If you’re significantly in debt, even if you’re not a Gen Zer, you’ll have to make some hard sacrifices and choices to get out. The first step is to make a realistic budget. Prioritize your needs, not your wants, and get your income and expenses in balance.
If there’s no way you can cut your expenses any lower, then you’ll have to find a way to bring in more income, whether through a pay raise, a side gig or some other source. Until you’re consistently earning more than you spend, you won’t be able to make a dent in your debt, let alone save or invest money so you can reach your financial goals.
Once you’re on the right side of things from an income and expenses perspective, you’ll have to aggressively attack your debt. Make more than the minimum payment, avoid giving in to indulgences and stick to your repayment plan. In some cases, a 0% balance-transfer credit card can help out, giving you a 12-to-18 month window in which to pay down debt without increasing your balance. Just be aware that your rate will likely jump up to 20% or more as soon as your promotional period ends.
It can be difficult to begin a debt-repayment program, but the sooner your start, the faster you can get out of debt. Just take the process step-by-step until you get out from under that burden, and try to avoid taking on new debt in the future.
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This article originally appeared on GOBankingRates.com: 4 Reasons Why Gen Z Is Leading the Surge in Personal Loans
