Nearly 200% increase in young adults seeking credit counseling amid soaring debt

(TND) — Young adults are increasingly digging a hole of credit card debt.

Money Management International, one of the country's largest nonprofit credit counseling organizations, is seeing an increase in people 18-29 seeking its help.

“What we're seeing is that the younger adults are growing at a faster rate, and the level of debt they're carrying is growing at a faster rate,” Thomas Nitzsche, a financial educator at MMI, said Friday.

There’s been a nearly 200% increase in young adults seeking MMI’s services since 2019.

Meanwhile, there’s been a 15% decline among all age groups of credit counseling clients.

The average unsecured debt for the young MMI clients was $16,490 last year, up 84% from 2019.

The average unsecured debt for all age groups was $28,051 last year, up 31% from 2019.

And the amount of debt keeps rising.

MMI said the average debt for young clients increased to $18,152 in the first quarter of this year. That’s nearly a 20% annual increase, compared to a 10% annual increase among all age groups.

The growth of young clients is fully organic for MMI.

“We've not done anything to market ourselves any differently,” Nitzsche said.

He believes there are two main drivers at play.

Young people are typically early in their careers and earn less. Inflation and high interest rates hit them harder.

And, Nitzsche said, young people might be more willing to reach out for help.

“They're more likely to seek solutions, more likely to open up and have conversations about what older adults would consider taboo,” he said.

MMI’s data aligns with other recent reports showing growing credit card usage, and trouble, for young people.

TransUnion published a report last week showing Gen Z people are using credit at higher levels than their Millennial counterparts did at similar stages of life.

“Gen Z consumers have seen their finances significantly impacted by the pandemic and its aftermath, even more so than the challenges faced by Millennials as a result of the Global Financial Crisis,” Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, said in a news release. “This likely has played a key role in the shifting priorities of Gen Z consumers, both in the types of credit they are seeking, and the way they are using that credit once they gain access to it.”

The Federal Reserve Bank of New York this week said Gen Z has the highest credit card delinquency transition rate. And over 15% are maxed-out, meaning they use over 90% of their credit limit.

The unsecured debt, which now averages over $18,000 for MMI’s young clientele, primarily has to do with credit cards and personal loans.

Nitzsche said the increase might not be over, as their traffic tends to lag real-time inflation.

“When people are experiencing high inflation, they're putting expenses on a credit card,” he said. “Because it's a familiar tool. It's a relatively safe tool. And they're doing that over time. And then eventually they reach a point that kind of breaks the camel’s back.”

The increase in unsecured debt among MMI’s young clients, up 84% from before the pandemic, has far outpaced overall inflation.

The consumer price index, a popular measure of inflation, is up 23% from April 2019.

Is Nitzsche worried about more young adults seeking credit counseling?

“It's kind of a double-edged sword,” he said.

The rising debt isn’t good, but he’s encouraged that young people are willing to get help.

He also had advice for folks who feel like they’re falling behind.

“The first step is just creating a budget,” he said. “Most of the clients we work with haven't done a formal budget and just really understood what's coming in, what's going out. Because you can usually fill some gaps in your spending that way.”

If you do fall behind, talk to your creditors, he said.

A lot of creditors have hardship programs in place, or they'll work with a debt management group, such as MMI, to reduce interest rates.

“Because that's really what's killing people is the elevated interest rates on credit cards,” he said.

A 0% balance transfer card might be a good option for some people. You could pause your interest clock for up to 21 months with one of those cards.

A consolidation loan is another option.

A reputable nonprofit credit counseling agency, such as MMI, can also help.

Nitzsche said it’s key to have more of your payments go to principal rather than interest.

“If you just make the minimum payment, you're going to be dealing with that for a really long time,” he said.

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