• 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 ?

Consumer debt crisis

According to data from the Federal Reserve Bank, auto loans are one of the largest borrowing categories for the average consumer, just behind mortgages and student loans. At the end of 2023, households across the country collectively had $1.61 trillion in auto loan debt alone.

In Jenny’s case, she underestimated the burden of the money she’d borrowed to buy her 2021 Toyota Camry because she was married at the time. “That wasn’t based on my [income], it was based on my husband’s income,” she told Hammer.

However, Jenny is now in the process of getting a divorce — and the car’s liability remains in her name. Hammer discovered that Jenny’s interest rate is 11.97%, with an outstanding balance of $30,656. She has 63 months left on the term and monthly payments of $646.

“That’s 30% of your income,” Hammer gasped. Jenny’s payments are not unusual given that the average monthly car payment for a new vehicle is $738, according to Experian’s latest data. However, she clearly can’t afford that amount because her monthly income from her part-time job as an assistant manager is just $2,251.

This situation is compounded further by her reckless spending habits.

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

Unfettered spending

Since her breakup, Jenny has moved back in with her parents which allows her to avoid housing costs. This would’ve given her some breathing room, financially — had she not maxed out her credit cards on vacations, online gaming, high-end makeup and nights out with friends.

She revealed an addiction to Monopoly Go on her phone, and a girls' trip to San Marcos, Texas, even though she couldn’t afford it.

“Is there anything on here that’s a necessity?” Hammer asked while going through her monthly statements. Altogether, Jenny spent $3,151 in one month — 39% more than her monthly income.

Jenny isn’t the only one using credit cards and overdrafts to bridge the gap between her spending and earning. The Consumer Financial Protection Bureau (CFPB) found that more than a quarter of consumers had someone in their household with an overdrawn bank account.

In fact, Gen Zers, in particular, are raking up credit card debt at an accelerated rate. Between 2021 and 2023, this cohort of consumers saw their aggregate credit card balance surge to a whopping 174%, according to data from LendingTree.

Snowballing debt at a young age is risky behavior. To break the cycle, Hammer encouraged Jenny to sell the car immediately and pick up a cheaper model for less money. In addition, he suggested she switch to full-time employment to boost her monthly income and adopt a strict budget to keep her spending in check.

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.