Young Americans are Facing a Debt Crisis: Here's How to Protect Yourself

As a nonprofit financial counseling organization, we see a lot of financial trends as they develop. Every client's story is unique, but the data often tells a much broader, more unified story. And in the case of the clients we've served recently, the story is alarming.

Between 2020 and 2025, the amount of unsecured debt (not mortgages or car loans) held by clients aged 21-30 has more than doubled, from an average of $9,300 in 2020 to an average of $19,200 in 2025.

This finding was part of a recent analysis that also found that the number of young consumers actively seeking help from MMI for their financial challenges has increased over 500% since 2020.

And when you look at the economy at large, you can see how we got here. According to an analysis from Bank of America Institute, nearly a quarter of all US households are living paycheck-to-paycheck with absolutely no safety net. Inflation continues to outpace wage growth, especially for lower-income households.

Getting out of debt is hard under any circumstances, but it's even harder when there's little to no wiggle room in your budget. Still, if you've seen your debts increase dramatically over the last few years, being proactive and getting ahead of a potential crisis is much easier than trying to recover from a massive financial setback. With that in mind, here's a gameplan for avoiding a debt crisis even when you're living paycheck-to-paycheck.

1. Slow and refine your spending

With a limited income, every dollar counts. It's not a lot of fun having to be extra meticulous with your spending, but being cautious and thoughtful is the only way to maximize your money.

Prioritize essentials

Before anything else, make sure your four walls are covered:

• Housing (rent/mortgage)
• Utilities
• Food
• Transportation (to get to work)

If you can’t cover all four, you’re already in a crisis mode and credit card debt is the least of your concerns.

Create a bare-bones spending plan

Write down your next 30 days of income and required expenses. Cancel or pause anything you don't absolutely need, including:

• Streaming services
• Subscriptions
• Apps
• Eating out and ordering delivery

Every bit counts when you're avoiding a crisis, and Netflix costs more than you probably remember.

Track your money closely for at least 2 weeks

Most of us think we know what we spend in a given month, but you'll be surprised at how many things come up that you weren't planning for. Tracking gives you visibility and the opportunity to fine-tune your spending plan.

2. Seek relief for your debts 

The worst thing you can do is put your head in the sand and hope everything works itself out or just goes away. You may be incredibly stressed and maybe even ashamed about your debts, but not facing things head on will only make them worse.

Contact your creditors immediately

Creditors do not want you to default on your credit card accounts. If it takes extra concessions on their part to avoid a worst case scenario, they'll often provide some amount of support. But they won't do anything unless you ask.

So call your creditors, explain your hardship, and see if they offer:

• Hardship programs
• Temporary payment reductions
• Forbearance options
• Lower interest rate opportunities

Success is not guaranteed, but even if the creditor can't offer you direct relief, they'll likely refer you to a trusted partner who can.

Work with a nonprofit credit counseling agency

Any debt relief option should be on the table, but when money's tight or you've started to miss payments, you may not qualify for a debt consolidation loan or similar products.

Your best bet in those cases is to work with a nonprofit credit counseling organization like MMI. At MMI, we can help you:

• Review your whole situation for free
• Build a realistic budget
• Explore all potential debt repayment option, including consolidation and bankruptcy
• Create a personalized debt relief solution that can drastically lower your interest and simplify your payments

If you're unsure where to start or which options are best for your situation, just connect with a certified counselor. MMI's counselors are available 24/7, online and over the phone. 

3. Build a small cushion to break the paycheck-to-paycheck cycle

When you're living paycheck-to-paycheck it often feels impossible to save anything. But the only way to break that cycle is set aside some savings. Even a small amount is better than nothing.

Start with a $250–$500 starter emergency fund. This is critical because one unexpected cost (a flat tire, a copay, a bill you forgot about) can force you to use credit—starting the cycle again.

Try using automation to force yourself to save. Small amounts are fine. $5 per paycheck and $10 from your side hustle, and a once-a-month $25 transfer can build your first cushion surprisingly fast.

The more you save, the bigger your safety net becomes, and the less likely you are to fall back into the paycheck-to-paycheck cycle. It can be hard work, but it's worth it, especially when the economy doesn't seem likely to improve for lower income families any time soon.

"There's not a lot of things you can do of this magnitude on your own."

Darin and his family paid off $25,000 in debt with MMI in less than four years. You're not alone. Start your free financial analysis and see how much you can save with MMI.