Debt is the money owed by one party to another under the condition of paying it back within a specified period with interest.
From buying a home to running up a credit card bill during a shopping spree, debt is something we all deal with at some point in our lives.
Though debt is a common subject, there are some hidden facts that people don’t know about debt.
In this article, we’ll be revealing some interesting facts about debt that you don’t but should know to manage more effectively.
Read: What Is Debt Settlement?
Let’s dive right in!
1. People Often Overestimate the Amount they Owe
Just like age or weight, a vast majority of lenders overestimate how much they owe?
In the Federal Reserve’s 2013 Survey of Consumer Finances, credit card companies and lenders reported about $683 billion in outstanding credit card debt, but the borrowers only reported around $268 billion, and this disparity is greater than any other type of debt.
2. Medical Debt is the Driver of Mental health Issues
Medical debt is often referred to as the driver of health outcomes, and people having medical debt are more likely to experience poor mental health and shorter life expectancy.
The research on what type of debt affects life satisfaction the most shows that 64% of people with medical debt are the least satisfied with their lives than any other debt.
3. Not All Debt is Bad
People think of debt as the worst thing that could ever happen to them. However, not all debt is bad debt.
Credit card debt allows people to pay student loans, pay the mortgage of their house, or build a good credit score without taking out a loan.
Even a bad credit score may get you an improved loan term and a lower interest rate in the future.
4. Gen X and Baby Boomers are Carrying the Most Debt
When it comes to debt, Gen Xers and baby owes the highest amount of debt compared to any generation.
As per the study conducted by Northwestern Mutual’s 2019 Planning & Progress Study, Gen Xers, the people between the ages of 39-54, and baby boomers (ages 55-73) owe $36,000 in personal debt, particularly because these generations were hit hard by the financial crises of 2008.
5. Millennials have the lowest Debt
Millennials are probably the only generation that has not reached its financially full plate state yet and enjoys the lowest debt on their credit cards than previous generations.
Only 56.7% of millennials have credit card debt, and this lower figure could be in part because they didn’t have enough time to rack time debt on their credit cards.
6. People Who Got Credit Card Between 21-25 have the Most Credit Card Debt
The age when you get your first credit can have a significant influence on how much debt you will accumulate.
Consumers who got their first credit card between the ages of 21 to 24 carry the most credit card debt at $6,461, followed by the age group of 18 to 20 with an average debt of $6,050.
The people who got their credit cards at the age of 25 and older have much less debt with an average of $4,234.
7. 71% of People Hide their Debt from their Partner
Research shows that around 71% of the people who commit financial infidelity in serious relationships lie about having debt from their romantic partner because they are ashamed of it.
An average couple hides or doesn’t reveal their debt until 10 months into the relationship making it the fifth most common type of financial infidelity among both genders.
8. You are not Responsible for Your Spouse’s Debt
There is no such law that makes one responsible for their spouse’s debt based on the marriage or live-in relationship unless you have signed to be responsible for your spouse or partner’s debt.
However, divorce or separation under specific circumstances may trigger some responsibilities for debt.
9. Your Credit Score Will Recover from Bankruptcy
One of the most interesting facts that people don’t know is that if they have never filed for bankruptcy before, their bankruptcy will be completely removed from their credit report after six years, and they can easily build a new credit within 2-3 years.
10. Debt Settlement Can Improve Your Credit Score.
You may be surprised to know that debt settlement can actually help improve your credit score in the long run. While it will initially go down when you enter into a settlement, if you make all of your payments on time and as agreed, your score will gradually improve.
This is because settling a debt shows that you are willing to work with your creditors to pay off what you owe and are not simply trying to avoid your obligations.
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.