Young Americans now carry a shocking $1.12 trillion in debt — but it’s not entirely their fault. What’s driving this debt dilemma and how people of all ages can dig themselves out

Reasons young Americans are loaded with debt

Gen Zers aged 18 to 29 faced challenges similar to those faced by their millennial counterparts, such as an uptick in the cost of college. But what hurt Gen Zers the most was the back-to-back nature of the pandemic-spurred economic crisis followed by a years-long period of soaring inflation.

To be clear, millennials experienced these events, too. So did older Americans. But millennial-aged Americans and older may have at least been on more solid financial footing by the time these two crises erupted. Many members of Gen Z, in contrast, were in college or recent graduates when the pandemic struck and kicked off their search for employment at a time when the job rate was astronomically high.

In April 2020, the U.S. unemployment rate peaked at 14.8%, well past the 10% peak experienced during the Great Recession in October 2009.

No sooner did the unemployment rate start to fall than inflation began to soar. In June 2022, the Consumer Price Index, which measures changes in the cost of consumer goods and services, began climbing in 2021 and peaked at 9.1%. Only over the past few months did the index retreat toward the 2% mark, which the Federal Reserve has long maintained as its ideal annual inflation target.

Discover how a simple decision today could lead to an extra $1.3 million in retirement

Learn how you can set yourself up for a more prosperous future by exploring why so many people who work with financial advisors retire with more wealth.

Discover the full story and see how you could be on the path to an extra $1.3 million in retirement.

Read More

How young Americans can overcome debt

If you’re a member of Gen Z who feels burdened by debt, you’re not alone. One thing you can do to improve your situation is to use the gig economy to your advantage.

If you’re willing to work a side hustle, you can bank the extra money and use it to chip away at your debt. Self Financial reports that 45% of working Americans today have a side hustle, with the average gig bringing in $688 a month.

Additionally, make sure you're paying off your debt efficiently. Experian reports that the average credit card balance among Gen Zers is $3,266. Consolidating your balances into a personal loan could leave you paying less interest, not to mention setting you up with predictable monthly payments.

Of course, as you dig your way out of debt, be very careful about taking on new debt. If you intend to sign a mortgage, aim to keep housing costs to 30% of your income or less. Also, keep your car payments as low as possible. If you can stick to 10% of your income, that'll help. If that's not doable, make sure not to exceed 20%.

Finally, don’t overlook the benefits of budgeting. It may not seem like a particularly cool thing to do. But with the help of an app or an old-fashioned spreadsheet, mapping out your monthly expenses could help you spend in moderation and work toward different financial goals. Considering how you’ve still got the bulk of your career ahead of you, there’s plenty of opportunity to build savings even if you’re starting at a deficit.