This one, I picked on you guys in the show prep on it because you're—I was like, what? What are we doing here? Is this just because I'm quickly approaching the threshold? But we're going to talk about debt by age for 40s and 50s. Now, why did we group those? And the reason is because, remember, we're using this Credit Karma study that we found. Let's talk about Gen X. Yeah, this is me, I'm part of the X, we're the Gen X, the Generation, you know, Elon's, you know, change into X. I don't know if that's because the whole Gen X. I mean, I'm sure there's more to it, but it is one of those things where I think we need to be careful.
Because 40s, we talked about the messy middles in the 30s, but 40s, I'm hoping that you've kind of had that breakaway moment. This is when we know most millionaires are made. In your late 40s, we know this is when hopefully you start, your student loan debt is disappearing. This is when you're paying for cars with cash, hopefully. This is your—you actually get freedom even according to our money guy rules in your 40s to start paying down that mortgage before it's even due. You've got—you've built up such a good foundation and then credit card debt hadn't existed for decades. You're like, credit card debt? What's—I use a credit card, but I don't know what credit card debt is. That's what the ideal. But unfortunately, that's not what the data shows for my generation. It is not. And Brian, I feel so bad, your generation not a fantastic showing here. But that's not—that may not be true of you. You guys are not as bad as the Boomers, let's be clear. But let's keep it going, let's keep it going. But you guys are financial mutants. But it is important to think about, okay, how do our peers around us look?
Well, if we look at student loan debt for Gen Xers, as a reminder, these are folks that are currently aged 43 to 58. So, these are not people that just got out of school most likely. Average student loan debt is just under $42,000. Outstanding students that created a double take from me. I was like, what now? What do you mean $42,000? I was like, does that—does that mean is this their kids? But then we went deeper because that's what we do here at the Money Guy show. We actually show you the numbers. Check this out. The average monthly payment for Gen Xers, $54 a month. It's hard to get out of debt when you're paying fifty dollars a month. Exactly right. It's hard to build millions with fifty dollars a month. It's hard to get out of debt with fifty dollars a month. So let's get serious because look at the average account has been opened for 384 months. Don't worry, you don't have to pull out the calculator and go, what does that mean in years? It's 32 years. It's this—this is ridiculous. It's crazy that people are carrying around student loan debt for 32 years. So that's obviously a problem, something needs to change there. We'll talk about that. But before we move to that, let's talk about auto debt.
When we think about Gen Xers, the average auto debt that they're carrying right now, a little under $27,000. Again, this is across Gen Xers that actually have auto debt. The average is $26,000. Well, I think what's wild is that you would think, okay, you said, Brian, that by the time you get your 40s, you've got some wisdom, you've made some sound financial decisions, you're starting to approach finances a little bit better, until we actually look at the numbers. The average monthly payment on an automobile for a Gen Xer is $645 a month. And the average open account age, how long the loan has been running, is 93 months or nearly eight years on auto. I know a lot of you see this stat and be like, 98 years—93 months. And when we know that the average auto loan, this already is a disgrace, is between 70 to 72 months. That's how long people are financing new cars and so forth. How can it be 93 months? And the reason is, is guys, Daniel and I, we found this out a long time ago. The lion's share of you are not paying cars off, you're actually, when you go get your next car, you're rolling what's called negative equity, meaning you never own the car. You roll that negative equity right into the next auto loan. That's a disaster. You know, it's just—realize these cars are not wealth builders, they are hurting your financial future. Don't do that. If you're not paying this car off in three years, you couldn't afford it. Yep, you couldn't. And truthfully, in your 40s, you all, my Gen Xers, look me in the eyes, pay cash for your cars. You're at the point when we do our millionaire studies, nobody's financing cars. If you're doing it right in your late 40s, I want you to buy affordable transportation.
The
20/3/8 is supposed to be the bridge for people who are early and they're saving, path, and they need to have some type of bridge to get them to reliable transportation. If you're making this decision when you're 20, 30 years out of education and you've been working in the workforce, you're faking it at this point. And I got to tell you, don't do it, pay cash. You're in your 40s. I love it. When we think about the average Gen Xer, their current outstanding mortgage debt, for those that carry a mortgage, is a little over $240,000. And the average credit card debt again, Brian, we said, man, that credit card debt should have been a thing that was decades ago. The average credit card balance for a Gen Xer is a little over $8,200. So if you think about the entire Gen X population and you look at the total average debt across all Gen Xers, it's average debt of a little over $61,000. Again, this is a study done by Credit Karma looking at 80 million different credit reports. So this is a large population study. Not fantastic. Not the average may not be where you want to be if you're a financial mutant. I don't think you want to be a little bit better spot than the average. Yeah, we want people to build financial independence, and that means being unencumbered. But here's one of the things.
Let's kind of talk about these pitfalls and go through these mortgages. This is going to be your biggest source of debt. Be careful with this. Here's the thing: I think a lot of people, I'm shocked because this is the decade I give you permission to start. Because, you've got get wealthy strategies and you've got stay wealthy strategies. Paying off your debt is definitely a stay wealthy strategy. But it looks like a lot of folks don't understand this. Still, respect the 25% rule for housing. I also want you to think about—there's nothing wrong with taking your 30-year mortgage and, especially with interest rates being much higher now, you can pay it off in 15 years. I haven't seen a prepayment penalty in a mortgage document—I mean, I don't know if I've ever even seen one in the last two decades. So, I would definitely encourage you to get creative on how you can accelerate paying off that mortgage.
So, in your 40s, if you're not buying your first home, maybe you're buying your second home or you're upgrading—the rules still apply, although you can tweak them a bit. Because you still need to have at least a five to seven-year time frame, even if you're buying your second home and upgrading. It needs to be a long-term decision. It's not a one to two-year decision. If you are upgrading your home and this is not the first home you're buying but it's your next one, 20% is a must. You cannot get around that. And Brian, you've already said, you've got to make sure—even with the next home, even with the upgrade, even with the improvement—you have to make sure that your housing costs stay below 25% of your gross income. If you're not doing that, you're likely doing it wrong.
Yeah, and then we can talk about cars. I kind of hit this pretty hard already, but it is one of those things. Remember, my generation, you guys, because we're rolling that negative equity in our car loans, are around eight years. That's disgusting. Make sure you know—look at our
20/3/8. You know that is like just the minimum. If I had my way, I want you obviously investing much more than your actual car payments are. But then I want you to go beyond that. I want you to go beyond that. I want you, like, because a lot of you are probably in the temptation stage of buying luxuries. Those need to be same as cash, paid off immediately. I want, basically, everybody in my generation to be leaning heavily towards that paying cash option. The thing is, rules of thumb exist for a reason. They're supposed to be general guidelines. But as you improve through time, and hopefully in your 40s, it is that fork in the road moment where you say, 'Man, I've been making really great financial decisions. Where I used to need the
20/3/8 bridge, I don't need that anymore. I used to need to make sure that my car payment, my monthly investments, were not out of whack. I don't even have to think about that anymore, because I'm making the decisions that I know I'm supposed to be making.' And yet, the average Gen Xer is not doing it, Brian, because this one, I think, is remarkable.
We think about credit cards. The Gen Xers have the highest, on average, credit card balance. Now maybe this is because your kids are getting older and they're going off to school, and they're more expensive. And maybe even some of the decisions you weren't making in your 20s and 30s are now catching up. You're having to figure out how to do a bridge. But that is not where you want to be if you're in your 40s. Yeah, I have a little more grace for my 20 and 30-somethings because, you know, in your 20s, you're still figuring out how—you're going to make money, you know what career you're going to do. In your 30s, we've already covered it, it's the messy middle. You've got a lot of commitments and obligations. And yet, you're entering your peak earning years. Guys, in your 40s and 50s, all my Gen Xers, we're in our peak earning years. That happens in your late 40s, early 50s. And you guys, if you're running credit card debt, what are you doing? This is a basic. This is—how can you ever have success if you can't even do the basics?
So, tough love moment, legitimately, if you are carrying credit card debt in your 40s, you're not a credit card person. You just let it go. Get rid of the credit card. Because remember, credit card use is okay, but it's the moment you have credit card debt, no way. You just have to walk away from it. Because you're just not the credit card type of person. You just don't have the discipline. And that's something you should internalize and figure out how you do better. Because you're beyond. And it's not one of those things where you can say, because this is not the age where you get to reinvent yourself. You have to have that tough, cold-water discussion and be like, 'This is what I've got. How do I maximize where I'm at?' And credit cards are not going to be that bridge to get you to where you want to be. I love it.
