It is a financial axiom that you cannot be financially secure while holding significant debt. The Milken Institute views robust debt management not as a hurdle but as a foundational component of wealth creation. High-interest debt acts as a direct drag on long-term prosperity, functioning as a “reverse investment” that erodes personal net worth faster than savings can accumulate. To build sustainable wealth, we must shift the narrative from debt dependency to proactive financial empowerment. This challenge is complex and requires a multifaceted approach based on understanding the debt landscape.
The Landscape of American Debt
The scale of the debt challenge is reflected in Federal Reserve data from late 2025, which showed that total US household debt reached a record $18.59 trillion, including:
- Mortgages: $13.07 trillion
- Auto loans: $1.66 trillion
- Student loans: $1.65 trillion
- Credit cards: $1.23 trillion
While mortgage debt accounts for the largest share, the rapid rise in non-housing consumer debt poses a significant threat to household financial stability, seemingly driven by higher costs. Consumer debt often prevents individuals and families from building a sustainable nest egg that would lead toward long-term financial security.
This burden may be fueling a potentially troubling mindset or cultural shift in how we define success. A recent Credit One Bank report found that for one in three consumers, financial freedom was no longer about accumulating wealth but about living debt-free. Many consumers are primarily focused on escaping debt to achieve peace of mind. Credit One described this as “The New American Dream.” It also found that 21 percent of Americans earning $50,000 or less said that debt kept them up at night. This headline flips the script on the American Dream that we highlight at the Milken Institute, which emphasizes building something and the freedom to live the life of your choice.
Wealth accumulation is further hampered by the challenges many Americans face in obtaining affordable housing, and, for many, astronomical health insurance and health care costs are the highest essential costs for most Americans. According to the National Association of Realtors Economist’s Outlook, the median home price is now $420,000, and the median monthly rent is $1,745.
The Survival Trap: When Debt Becomes a Lifeline
For many Americans, accruing consumer debt is not a choice made out of financial negligence, but a tool for survival. The gap between wages and the cost of living has been widening as the cost of health care, housing, utilities, and other essential goods has risen. Thus, a significant portion of the population is using credit to bridge the shortfall in their monthly budgets. In fact, two 2025 surveys found that 67 percent to 69 percent of Americans are living paycheck to paycheck. Many Americans see savings as merely aspirational.
The National Foundation for Credit Counseling (NFCC) gathers data on debt and financial management while also helping consumers manage and pay off their debt. The 2025 NFCC Consumer Financial Literacy and Preparedness Survey found that 40 percent of Americans are concerned their money won’t last, 33 percent are just getting by financially, and 33 percent feel they will never have the things they want in life.
The NFCC’s most recent Financial Stress Forecast found a sustained financial stress level of 6.6 out of 8 through two quarters in 2025. The NFCC states that this forecast offers insight into consumers’ capacity to repay unsecured debt and depicts their financial stress levels. This level matches the highest levels since its inception, and the NFCC notes a sharp increase in consumers seeking assistance from credit counselors.
Facing the Numbers: Turning Toward Finance
At the Milken Institute, we have emphasized that even when the numbers seem daunting, the solution lies in “turning toward finance, not away from it.” It is an instinct to avoid looking at a growing debt balance or a dwindling bank account, but financial security requires looking at the data to understand it. Unfortunately, many consumers are flying blind; according to both NFCC and Certified Financial Planner Board of Standards research, a significant percentage of Americans do not maintain a budget or track their spending, which can exacerbate inaction and feelings of being overwhelmed.
Personal Action: From Debt to Saving and Investing
Transitioning from debt management to wealth creation requires a structured approach. We recommend an initial three-stage rewiring process even for those who feel they can only make small changes:
- Build a savings buffer: Before aggressively attacking debt, establish a small emergency fund that will help prevent new emergencies from becoming new high-interest debt.
- Paying down debt with the Avalanche or Snowball methods:
- The Debt Avalanche: Prioritize high-interest consumer debt by paying the minimum on all balances while directing extra funds to the debt with the highest interest rates first.
- The Debt Snowball: Prioritize paying off debt from the smallest balance to the largest, thereby gaining the psychological momentum to continue.
- Automate the pivot: Once a high-interest balance is cleared, redirect that monthly payment first to an emergency savings account that builds to several months of income and then into retirement, and automate the process.
An Innovative Solution: The Life Beyond Debt Program
To address the need to transition from debt to savings, the NFCC launched the “Life Beyond Debt” program. It provides a structured method for both paying down debt and saving. Consumers can pay a small additional amount on their debt each month, which is then swept into a retirement savings account. Consumers consider small ways to eliminate expenditures to reach their savings amount to be added to their debt payment. The newfound savings can also change mindsets and choices in small ways that can be consequential.
Employer Assistance in Bridging the Gap
Employers can help individual workers build incremental wealth. Aside from increasing wages, they can add benefits that could be impactful for employees looking to get out of debt and to prevent shortfalls, including:
- “Wealth Shift Stability Grants” tied to debt management training: Similar to a 401(k) match, employers could offer small incentives by contributing to wealth builder-style emergency accounts for employees who complete credit counseling. This stability grant could provide initial seed money to help employees start their new financial journey and prepare for financial emergencies. Thus, this one-time cash contribution would also benefit the employer by creating a more financially resilient and emotionally strong workforce that is less likely to rely on costly retirement plan withdrawals.
- Debt coaching: By providing access to NFCC-certified counselors as a core benefit, employers could give their staff the tools to build a budget and tackle high-interest debt, reducing the financial stress that some experts assert leads to decreased productivity. A human- or AI-driven one-on-one debt coaching session could be made available on a one-time basis or integrated into employee onboarding.
Conclusion
The considerations discussed above provide a starting point for debt management at both the macro and micro levels. The Federal Reserve’s data, as well as those gathered from other sources, paint a clear picture of many American consumers stretched to their limits. Individuals in debt will need to engage with finance directly to make changes.
We encourage those in debt to work with organizations like the NFCC, and we encourage employers to widely adopt debt management support. We hope that companies may start to offer tools like providing small seed grants and debt coaching as fundamental pillars of economic resilience rather than an “extra benefit.” Our goal is to see personal initiative coupled with institutional support, ensuring that no one has to choose between today’s groceries and securing tomorrow’s retirement.
