• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Debt-fueled consumption

Avery enjoys splurging on cosmetics, Pokemon cards and live concerts while paying a hefty monthly sum for her car. Unfortunately, some of these items have become excessively expensive in recent years.

The average price of a concert ticket surged from $90 in 2018 to $120 in 2023, according to Apollo Global Management. However, many young fans end up paying much higher prices on the resale market, where tickets can go for thousands of dollars, depending on the popularity of the artist.

These eye-watering prices haven’t tamed Avery’s enthusiasm. Despite her various debts, she’s planning to attend more concerts later this year.

“I'm going to go see 21 pilots and Melanie Martinez,” she told Hammer. “I'm so excited.”

But she can’t afford these concert tickets, so she’s signed up for various buy-now-pay-later (BNPL) programs.

Research from the New York Federal Reserve Bank shows that “financially fragile” borrowers — those with a credit score below 620 and who have been declined for a credit application in the past year — were more prone to use subscribe multiple to BNPL plans.

Coupled with her passion for Pokemon cards and cosmetics, Avery’s spending frequently exceeds her modest annual income of $44,000. That means several bank accounts are frequently overdrawn and she has outstanding balances as high as $5,000 on some credit cards.

The heaviest load on Avery’s finances is her Toyota Camry. The outstanding balance for this auto loan is $31,972, while her monthly payments are $652. However, Avery’s income cannot sustain her current payments.

“Twenty percent of your take-home pay goes to this car,” Hammer calculated. He believes the car is worth just $21,000, which means it’s underwater by at least $10,000.

He warns that Avery’s situation is spiraling out of control, while she admits to not being financially literate.

Need cash fast? Turn to Credible for hassle-free personal loans!

With competitive rates and transparent terms, Credible makes borrowing simple and stress-free. Whether it's for a new car, home improvement, or debt consolidation, find the perfect loan for your needs.

Find the best rate for you

Financially naive

Avery's financial naivety and poor mental accounting are the core reasons behind her mounting debt burden.

She claims to have a “method” to manage her various accounts and with her pay schedule to maximize her credit score, but Hammer discovers that she’s borrowing money from some accounts to pay off others.

“You are not taking advantage of credit, they are taking advantage of you,” he said. “They own you.”

To make matters worse, Avery admits she rarely monitors her accounts.

“I’ve never really checked my finances to be honest with you,” she said.

This isn’t unusual. As of 2024, only 50% of American adults had the skills needed to manage their personal finances, according to a financial literacy survey conducted by the World Economic Forum.

Fortunately, Hammer believes it’s not too late for Avery to salvage her situation. He recommends trading in her car for a cheaper model and sticking to a tight budget — meaning no unnecessary expenditures — to pay down her “bad debt.” If she starts “grinding” immediately, he believes she can unburden herself in two years.

Sponsored

This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024

Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.

There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.

Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.