Discipline, Not Income, Prevents Debt

A recent post by @akieler on consumerist.com (part of Consumer Reports) reports on a Northwest Mutual commissioned survey that says the average debt (excluding mortgages) for U.S. adults is $37,000. This is a case where being below average would be good!

Although it was an online survey, the results are disturbing:

  • 21% were unsure what portion of their income goes to debt repayment
  • 18% only make minimum payments
  • 14% expect to be in debt for the rest of their lives
  • 25% admit to excessive/frivolous spending

Yet when asked what change would most significantly impact their financial situation, only 7% said “having a comprehensive financial plan.” The most common response was essentially more money (36%). This may sound heartless, but no amount of money will resolve debt problems that result from a lack of fiscal discipline. From the survey: 40% of discretionary income goes to “entertainment, leisure travel, hobbies, etc.”, while only 33% goes to paying off debt. Debt piles up when you’re living beyond your means.

Forty percent of respondents said they experience moderate to high levels of anxiety based on their debt. Despite these feelings, when given the choice of how to spend an extra $2,000, 60% said they would not use it to pay down debt (although 40% said they would put it in savings… a little silver lining).

People who are struggling with debt need to establish fiscal discipline and stick to a budget. That’s Chapter 2 of my book, Basic Personal Finance.

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