Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress

Why It Matters:

  • Millennials with consumer debt have an average of $36,000
  • Thirty-nine percent of millennials feel stressed about repaying their debt
  • A study revealed that some Americans who had debt reported it negatively affected their health

Melissa Komadina tkc.profilePicture Written by: Melissa Komadina | Transamerica
July 24, 2019

5 Min readClock Icon

When it comes to millennials getting out of debt, it’s not as simple as just cutting back on avocado toast.1

The total average debt for millennials is estimated at $36,000, according to Northwestern Mutual’s 2018 Planning & Progress Study. The top sources of millennials’ debt is educational loans followed by credit card debt.2

A study found that millennials have more debt than earlier generations (with the exception of Gen X, who hold similar levels.) When compared to earlier generations, millennials also have lower earnings and fewer assets.3

The stress of being in debt

A Student Loan Hero survey found that the top money stressor for millennials is debt. Thirty-nine percent of millennials worry about too much debt.4 A NerdWallet survey of 2,000 adults, revealed 1 in 5 Americans who had debt report that it negatively affected their health. The survey also found that being in debt also affected peoples' general happiness and standard of living.5

Make a plan to climb out of debt

When you’re saddled with debt, getting out of the red and into the black may feel completely unattainable. Having a financial plan for paying down debt and saving for emergencies and retirement, however, can give you a sense of control over your situation and thus may be well worth your time.

But where do you even begin?

First, set up a budget if you don’t have one already and figure out how much money you have to pay toward your debts. The 50/20/30 budget can be helpful here in determining how you should be splitting your income.6

  • 50%: Essentials, i.e., your “overhead” costs like housing, utilities, transportation, food, etc.
  • 20%: Pay-yourself-first categories like emergency savings, retirement accounts, and debt repayments. Set aside emergency savings and automate your retirement account contributions first, then use the rest for paying off debt.7
  • 30%: Lifestyle expenses that aren’t essentials, such as avocado toast, entertainment, travel, etc. Minimizing these expenses will give you more money to spend on your “20%” categories.

Second, and perhaps the hardest step: figure out how much debt you actually have, from student and car loans, to credit cards and other loans. Also note the interest rates (APR) and minimum payments due for each account. Not knowing your true debt amount will make it harder to feel like your financial plan will be effective. On the other hand, seeing everything laid out accurately will give you confidence in your plan.

Now that you have your debts and interest rates in front of you, decide what your strategy will be to pay them off. There are two ways you could think about this: debt stacking or the snowball method.

  • Debt stacking

With the traditional debt stacking approach, you pay the minimums on all of your accounts and then use any remaining money as an additional payment for the account that has the highest interest rate. Once you’ve paid off that account, you then focus on the account with the next highest interest rate, and so forth.

The pro of debt stacking is that you’ll save money on interest in the long run, but it could be a while until you pay off all of your accounts.

  • Snowball method

The debt snowball method takes the opposite approach in that you pay the minimums on all accounts but put any extra money toward the account with the lowest balance.8

You might pay more in interest, but there’s also a psychological benefit from completely paying off a debt that could help motivate you to stay on track with your overall financial plan.

You can also play around with the amounts you’re paying toward each account. I Will Teach You to Be Rich author Ramit Sethi’s free debt calculator will show how your payment amounts impact the time you’ll need to pay off your debt and the additional interest you’ll have to pay.

Third, set up autopay for all of your financial accounts for at least the minimum amount due. Not only will doing this free up the mental energy of not having to remember to pay an account, but you’ll save money on late fees and potential penalty interest rate increases. Whichever debt payoff method you choose, set a calendar reminder to make the additional payment on your target account, or schedule it in advance.

Fourth, consider refinancing your student loans and/or negotiating for lower interest rates with your credit card companies. Sethi even has a phone script for calling your credit card company. Considering it could save you thousands of dollars in the long run, it never hurts to ask.

Finally, take care of yourself. Dealing with financial woes is stressful, but eating well, exercising, and spending time with friends and family are important ways to mitigate stress and the toll it can take on both your physical and mental health.

Things to Consider:

  • Get an accurate handle on all of your debt
  • Talk with a trusted financial professional about your debt and your plan to pay it off while setting aside savings for retirement and emergencies
  • Check out personal finance tools like Mint that consolidate your accounts into one dashboard where you can see all balances at once


1 “Fact-Checking a Mogul’s Claims About Avocado Toast,” The New York Times, May 2017

2 “2018 Planning & Progress Study,” Northwestern Mutual, March 2018

3 Kurz, Christopher, Geng Li, and Daniel J. Vine (2018). “Are Millennials Different?,” Finance and Economics Discussion Series 2018-080. Washington: Board of Governors of the Federal Reserve System,

4 “[Survey] No. 1 Source of Money Stress for Millennials Is Debt,” Student Loan Hero, March 2018

5 “Survey: Credit Card Debt and Regret Go Hand in Hand,” NerdWallet, February 2018

6 “The 50/20/30 Rule for Minimalist Budgeting,” Mint, July 2016

7 “Pay yourself first: How you can overcome the challenge of saving,” Get Rich Slowly, May 2019

8 “How the Debt Snowball Method Works,” Dave Ramsey, September 2018



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