Debt is a part of life for many Americans. We go into debt to buy houses, cars, to get an education and everything else. What many don’t understand is how debt is holding them back. When you are in debt, you are really working for someone else. The money you are earning isn’t yours, it’s going to your lender to pay back your debts.
And as long as you are in debt, you are going to have a tough time growing your wealth and reaching your financial goals.
So what is the average debt in the US and how do you compare? In this post, I will break out the debt statistics for you to see. Regardless if you are doing better or worse than average, the goal is to get out of debt once and for all.
The sooner you can do this, the better off your finances and you life overall will be.
Average Debt By The Numbers
US Household Average Debt
The first stat we are going to look at is US Household average debt. The average debt for the US Household is over $230,000! Here is a breakdown of this debt:
It makes sense that mortgages make up the majority of this number. But, the other debt numbers are troubling. Credit card debt makes up just 6% of the total debt but the average US Household has over $15,000 in credit card debt.
Since most people have double-digit interest rates on this debt, it makes sense to pay this debt off first and foremost. If you have credit card debt and need a plan for paying it off, check out my post about a debt snowball.
Even as bad as the credit card debt number is, the auto debt number is high as well. Auto debt comes in at just over $30,000 and makes up 11% of the overall debt. This makes sense though since the average price of a new car is over $30,000. Of course it also tells us that a lot of people are buying a new car as opposed to a used car.
If you are looking to buy a car, be sure to read my post on negotiating a car price. By using the steps I outline, you can save more than $5,000 on your next purchase!
And we can’t forget about student loans. With how much students borrow, it should come as no surprise that this piece of the pie makes up close to 1/5 of overall debt. And I am sure this number will continue to grow.
Average Debt By Age
If we break down average debt by age, we see that across the board, every age group is in debt.
Of all of the above numbers, the scariest one to me is the debt of those aged 66 and older. Having over $23,000 worth of debt is crazy for retirement. The more debt you have in retirement, the more money you need to survive because you have your everyday living expenses as well as debt obligations to cover. Maybe this is why so many older Americans are still working. I wonder how many could afford to retire if they had no debt.
For my wife and me, we are making it a point to save now for retirement and keep debt at bay. We are doing everything we can to make sure we are debt free when we enter retirement and even well before!
To help us stay on track, we use the free retirement planner from Personal Capital. It’s amazing how motivating it is to see you are on track to reach your goals.
Other Debt Demographics
I want to break down total debt further, so I looked at average debt by gender and race. First up is average credit card debt by gender:
Not surprisingly, men carry more debt than women, both in terms of credit cards and mortgages. I will admit though that the gap is closer than I would have assumed.
When it comes to the average debt by race, it all comes down to the underlying numbers. Caucasians have larger mortgage debt while African Americans and Hispanics have higher student loan debt.
What The Average Debt Statistics Tell Us
So what does all of this information on average debt tell us? It tells that while the average American is doing better financially compared to the financial crisis, they still have a lot to improve upon.
And while I would love to sit here and tell you that all debt is bad and you should avoid it like the plague, this doesn’t make sense. Some debt can help you improve your situation when used strategically.
For example, debt allows you to buy a house which appreciates in value. Student loan debt allows you to earn a college degree and increase your earning potential.
But the key is to only take on debt that you can afford to repay. This is how so many people got into trouble with housing. They bought a house they couldn’t afford. They took out a max loan that the bank approved them for, thinking that if the bank approves them for the loan, then the house is affordable. This is false thinking.
If you are looking to lower your mortgage balance you have two options. The first is to refinance. Below you can get an idea of rates and how much you will save going this route.
The second option is to pay more each month on your mortgage. You can learn how to do this in my post about little known ways to pay off your mortgage.
Sadly, many college kids are now repeating this same mistake. They are taking out crazy amounts of student loan debt because they are approved for them. Remember: loan companies and banks are out to make money, not to make sure you can afford the loan you take out. Yes, they have guidelines so that there is a likelihood of repayment, but there is no guarantee.
If you have a mountain of student loan debt, the best option for you is to refinance. You can use the free service Credible to see just how much money you can save. The entire process takes less than 5 minutes and you are under no obligation to refinance. You can learn more by clicking here.
So what does this all mean for you? The same thing it always has: no one cares more about your money than you do. Don’t be so free to give it away.
Borrowing money is necessary sometimes in life, but it shouldn’t be your first choice. Be smart with your money and think long and hard before parting with it. If you are a debtor your whole life, you aren’t going to achieve financial success since the money you earn will always be going towards paying someone else.
In order to achieve financial success, you need to keep your debt levels to a minimum. How do you go about this?
Your first step is to learn to control your spending by budgeting. Don’t make the mistake that many people make and think a budget forces you to sacrifice all of your fun today for a better tomorrow. You can still have fun today while on a budget.
Once you have a budget, you can work on getting yourself out of debt if you have any. You can learn how to get out of debt once and for all here.
I also encourage you to check out my Debt All Stars. This is a list of people who have overcome various amounts of debt. Use it as inspiration while on your debt journey.
If you don’t have any debt, congratulations! Make sure you read my post on how to avoid debt going forward so you are never holding your financial success back.
You should take any extra money you have and start investing it so you can build your wealth. The easiest way to get started investing is to use M1 Finance. It’s simple to get started and free while you build up your investment portfolio.
The sooner you dig yourself out of debt and use a budget to keep a tab on your spending and start investing your money, the sooner you will reach your financial dreams. And getting there is possible. You just have to be willing to take the first step.