I Asked ChatGPT How Much Debt Is ‘Normal’ for Gen Z — and When It Becomes a Problem
While financial planners urge people to get out of debt as soon as possible, a certain amount of debt is often inevitable for Generation Z, who are completing their educations and entering the workforce.
While some debt may be expected, too much can hold Gen Z workers back from building a strong financial future. To look at this equation more closely, I asked ChatGPT how much debt is normal for Gen Z and when they should consider it a problem.
Check Out: Here's How Gen Z Entrepreneurs Are Shaping the American Economy
Read More: Start Growing Your Net Worth With Smarter Tracking
Kinds of Gen Z Debt
On paper, Gen Z carries less debt than older generations, ChatGPT said, but that’s primarily because they’re just getting started.
The average Gen Z adult has about $34,000 in total debt, the artificial intelligence (AI) bot said, citing data from Carry, a financial services platform that analyzed age-based borrowing trends and Experian. That’s a lot lower than than millennials or Gen X, mainly because most Gen Zers haven’t taken out mortgages and have shorter borrowing histories.
The most common sources of Gen Z debt:
Student loans: Roughly $20,000 to $23,000
Credit card balances: Around $3,493 on average
Buy now, pay later (BNPL): About 40% of Gen Z consumers have used BNPL services
Why Gen Z Debt Looks Different
Even though debt totals are lower, ChatGPT warned that Gen Z debt is growing faster than any other generation. This is partly because Gen Zers have been, and still are, entering adulthood during a time of high inflation and high interest rates. Many of them must rely on student loans and credit cards, though fewer of them have debt related to mortgages and car loans. They also have shorter credit histories, which can lead to lower credit scores and tighter limits.
The one upside is that, though they carry credit card debt, ChatGPT reported that nearly half of them say they only use credit as a last resort, suggesting they are cautious about it.
When Debt Becomes a Problem
For Gen Zers worried about debt threshold limits and other concerns, ChatGPT suggested staying aware of the following signs:
Your debt-to-income (DTI) ratio gets too high: A common rule is to keep total debt payments under 36% of your income. Get above that and lenders start to see you as risky.
You’re carrying high-interest balances month to month: Credit cards are the danger zone, with interest rates often around 20% and higher.
You can’t save at the same time: If debt payments prevent Gen Zers from building an emergency fund or contributing to retirement, it’s likely time to review financial habits.
You’re missing or delaying payments: Delinquencies damage credit as well as threaten to add fees, penalties or higher interest.
You’re using debt for everyday living: Using credit cards or BNPL for groceries, rent or bills is the biggest red flag of all.
A Practical Benchmark
ChatGPT broke down the difference between “manageable” and “problematic” debt as follows:
Generally Manageable
Gen Zers who fall into this category have student loans with a clear repayment plan, their credit card balances are paid off monthly and their total debt is under 36% of their income, preferably even lower.
Potentially Problematic
If you’re facing one or more of the warning signs from above, such as carrying revolving credit card debt, unable to save and feeling constant stress about missing payments, ChatGPT said you’re in the danger zone.
Debt Should Be Strategic
What separates “normal” from “problematic” debt isn’t just the total, but whether that debt is shrinking or growing, is still affordable relative to your income and allows you to save and stay current on your bills, ChatGPT said.
If it’s doing the opposite, debt stops being normal and starts becoming a long-term financial risk. Then it’s time to seek financial advice and change your habits.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: