26% of boomers, 32% of gen-X, 20% of millenials spend 50% or more of their monthly income repaying debt, according to https://www.consumerreports.org/retirement-planning/will-you-have-enough-money-to-retire/ .
Probably not the typical demographic of these forums, but it looks like a significant percentage of Americans have shaky household finances.
Does “debt” in these figures include mortgage debt?
That was exactly my next question - how much of that is unsecured debt?
Heck, we had mortgage debt for decades.
Credit card debt at high interest rates or student loans at high rates are another story entirely, especially when debt is high and income low.
Mortgage lenders do not like to see that high debt/income ratios (seems like 36% or 43% are typical thresholds before the borrower is seen as “higher risk”). If the person got a mortgage within the debt/income ratio that lenders like to see, then now having a much higher debt/income ratio suggest that either s/he took on other debt or now has lower income.
Yup. Though mine includes mortgage + escrow. Without those, it would still be pretty close to half.
I am definitely one of those people. At 46, now divorced, making barely enough to scrape by, bankruptcy in the last 5 years, student loans which keep growing due to interest, less than $15,000 in 401(k) from previous employers, no insurance, only a minimal amount for emergency fund, old vehicle that is starting to have issues. At this point I really see no way to ever be financially secure.
@HeartofDixie I’m afraid your situation is close to the new normal for a huge percentage (if not the majority) of Americans…
@ucbalumus – my point is that the mortgage debt can be the bulk of the debt, even if less than 50% of income. So if you combine mortgage debt of say, 38% of income – plus car payments (also secured) – say amounting to 4% of income – and then consumer debt and/or student which is 10% of income – that family has gone over the 50% threshold, but not necessarily an unreasonable amount of debt.
Also, mortgage debt can also creep over 50% of income with an adjustable rate – I don’t know if that’s such a thing these days – but way back when, it is how my ex-husband and I qualified for our initial payment – the ARM was combine with a discount for the first few years, so the mortgage payment was scheduled to go up each year. Then when my ex and I split, I stayed in the house & took over the payments, but right then I was in way over my head in terms of mortgage debt to income – so yes, income went down… but that happens. You can’t sign the dotted line for a 30 year debt and assume that income will remain consistent 30 years out.
But if I hadn’t had mortgage debt to pay – I would have had to be paying the same money or more in rent. Perhaps much more-- because I could refi my mortgage to lock in a lower rate, but rents just tend to go up and up over time. And yes, I spent money I didn’t have to buy a car – but that provided transportation back & forth to work, and I had that car for many years after it as paid off —ultimately giving it to one of my kids to take to college.
I asked because the gen-X’ers (age 39-54) are also the age group that I think most likely to be at the life stage where they are still paying off mortgages and also looking at college expenses for their offspring. They may also be taking on Parent PLUS loans – which can be a huge problem for those who over-extend, but can be a responsible and reasonable way for financing an education for those who borrow intelligently – and are simply looking for a way to spread out the college costs over 10 years rather than 4).
I’m not disputing that a high debt to income ratio can be a serious problem, but I do think it is very important to tease out the type of debt. Some debt (consumer credit card debt) can be a serious problem – because it is often a matter of people stuck for years paying for something they couldn’t afford in the first place, often paying many times over the original cost because of high CC interest rates. But some debt is a responsible way of amortizing costs over time (car purchase, for example) – and may actually be more cost-effective than an outright purchase. And that mortgage – at least for me it doubled as a secondary retirement investment. I’m a boomer, now on the verge of paying off my mortgage. My house has quadrupled in value – and houses in my community rent for 3 times as much as my mortgage payment was. And within a matter of weeks I’m going to not have any mortgage payment at all. So a mortgage payment that was at least 30% of my income in recent years (and historically well over 50% at times) – is dropping to 0.
So that’s why I think those numbers need to be broken out. If the biggest chunk of the 50% mark is tied to a mortgage, then that can represent a very sound investment into one’s future. And I don’t regret those Parent PLUS loans I took and paid off to pay for my kids to go to college either.
I’m not sure where those numbers are coming from, but I’m not surprised by it. It was much worse in 2008 when half the country were using their houses as their own personal ATM machines. I’m a big believer in living within one’s means. If you have a modest income, live a modest lifestyle. Most any family with 2-3 kids can live in in a 1600 sq ft house.