You can't outearn bad spending habits
Boosting income is generally considered a silver bullet for money problems. However, bad financial habits can outweigh the good that can come from high earnings.
This may be why many high-income families across America find themselves in financial stress. According to data from PYMNTS, 48% of Americans who earn over $100,000 a year reported they were living paycheck-to-paycheck. For those earning over $200,000 a year, the proportion was only slightly better at 36%.
A $200,000-plus salary should be sufficient to live comfortably in most parts of the country. However, some consumers feel pressured to overspend. More than half (51%) of Americans admitted they’ve overspent just to impress others, while 56% of this cohort said this need to impress people pushed them into debt, according to a survey commissioned by LendingTree.
By controlling spending and living within one’s means, consumers can avoid this vicious cycle of lifestyle inflation fueled by social pressure.
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Read MoreBad debt can rapidly escalate
Peterson’s story highlights the dangers of bad debt.
According to USA Today, court documents reveal that Peterson took a $5.2 million loan from a lending company in Pennsylvania in 2016. Prohibitive interest rates and legal fees have helped that initial loan balloon into a total liability of $12.5 million as of February.
Ordinary Americans can’t access multimillion-dollar loans from specialized financiers, but poor financial habits can still get them in trouble. As of 2023, 23 million Americans had an unsecured personal loan with an average outstanding balance of $11,500 and average interest rate of 11.48%, according to an analysis by MarketWatch Guides.
Meanwhile, household credit card debt ballooned to $1.17 trillion in the third quarter of 2024, according to the Federal Reserve Bank of New York. As of August, the average interest rate on a credit card is 21.76%, per the St. Louis Fed.
Paying off these expensive loans and credit cards to get rid of the burden of a monthly payment could help stabilize a household’s finances and place it on the path to wealth accumulation rather than destruction.
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