Americans plan to reduce debt for new year resolutions: CFP Board

With only several weeks left to go until the new year, Americans are prioritizing financial health in their New Year resolutions.

Research from the CFP Board’s "Debt and New Year’s Resolutions Report," 97 percent of Americans plan to start the New Year with financial goals. At the top of the list of 2025 financial goals is reducing debt (32 percent), followed by saving for a major purchase such as a car, house, or vacation (21 percent), and retirement planning (14 percent).

But with goals, also come worries, with 90 percent being concerned about having too many financial burdens and not enough resources to address them.

Key barriers include managing too many expenses (38 percent) and carrying too much debt (30 percent). More broadly, Americans are concerned about debt’s long-term effect on their financial well-being and life plans.

Effective debt management starts with creating a budget and sticking to it by tracking income and both fixed and variable expenses, said Jung Seh, financial advisor at Bogart Wealth.

“Housing debt, such as [principal, interest, taxes, and insurance] or rent, should ideally be under 28 percent of gross income, while total monthly debt should not exceed 36 percent, and consumer debt should stay below 20 percent of net income,” she said in an email.

“Focus on paying off the highest interest debt first by allocating maximum funds to it while making minimum payments on lower-interest debts. Once a high-interest debt is cleared, redirect those payments to the next one, and repeat the process,” she added.

While 45 percent of Americans are making it a priority to save more money, only one in four plan to seek out advice from a financial planner to help manage and reduce debt.

Reducing debt may be a crucial financial goal but fostering “a savings-oriented mindset” is even more important, said Kimberly Stirling, owner of Next Gen Wealth Partners.

“Achieving freedom from debt requires more than just paying off balances, it demands a shift in habits and perspectives. Expecting to build wealth while maintaining a 'debt mentality' is like planting seeds for one crop but hoping for another. If you're accustomed to living with debt, it's likely to persist,” she said in an email.

Conversely, cultivating habits focused on growing assets leads to financial security, she added.

“Many Americans have been conditioned to accept debt as the norm. Breaking this cycle starts with rethinking priorities and embracing a mindset geared toward saving and building wealth,” Stirling said.

One advisor said he’s advising clients to pay down debts and maintaining manageable debt levels for a predetermined timeframe.

“For example, working with a client that moves frequently for work but who wants to build equity in real estate for the time they no longer have to move as often for work should consider less conventional options like adjustable-rate mortgages (ARMs),” said André Small, founder and financial planner at A Small Investment, in an email.

Additional findings from the CFP Board found half of Americans who hold some debt report difficulty managing at least one type of debt. Seven in 10 Americans with substantial medical debt express difficulty managing that debt, while 60 percent of Americans with high levels of credit card debt report similar struggles.

Credit card and housing debt in particular pose significant challenges for many Americans.

Paying down credit card debt is likely a top priority for a lot of people because it’s “just a bad carousel that they can't get off of,” said Jim Dickson, CEO of Elevation Point.

“They're paying 20 or 25 percent on it, and they just can't get out of the hole,” Dickson said. “When you're paying 25 or 26 percent, you're going the wrong way.”

“That high interest credit card debt is going to be the number one thing most people should start with,” he added.

However, not all debt is harmful, as some debt can increase net worth and help credit scores, like mortgage and car loans, Seh said.

One solution Dickson offered is using technology, like a budget tracker, to build a plan which will emphasize spending habits.

“The only way we can really build a plan is to know what we're spending and categorize it. A lot of people sometimes don't want to see the truth, but if you really want to make progress, it starts with the truth,” he said.

“If you painted that picture for six months, I think you could probably find a way to prioritize your goals to have some success, but people don't do that, and I think it's a big miss,” Dickson said.