Published in: Credit Cards | Nov. 20, 2018
The Average American's Debt Balances: Anything Look Familiar?
By: The Ascent Staff
Americans have a lot of debt. That probably comes as no surprise, because you probably owe money, too.
Most of us owe money on some combination of mortgages, student loans, cars, and credit cards. Medical debts and personal loans are pretty common, too. While being in debt is normal, you may be wondering how your debt compares to your peers'. And now, you can find out thanks to the 2017 State of Credit report from Experian. Here are a few key findings from that report, along with some tips on what you can do if your debts are higher than you'd like.
Image source: Getty Images.
How high is the bill?
According to Experian, in 2017:
- The average mortgage debt was $201,811.
- The average non-mortgage debt per household was $24,706.
- The average student loan balance was $34,144, which is a new record.
- The average balance on credit cards was $6,354. Average credit card debt jumped 2.7% over the course of 2017, with Gen X-ers and millennials seeing the largest increases.
- The average balance on retail cards was $1,841. Balances rose 4% over the year.
As Experian explained, "average" doesn't always mean "typical": There are big regional differences in mortgages, and some households have high credit card balances but pay them off each month, while others carry a big balance for months or even years.
Still, the report shows that most Americans owe a lot of money. In fact, it indicated that debt in America hit $1.02 trillion in June 2017, which is an all-time high.
Experian's report also shows that a lot of Americans are having a hard time repaying debts. One in three student loan borrowers has been late on a payment in the past year, while 7.5% of credit card debt was delinquent by at least 90 days in the third quarter of 2017.
What can you do about debt?
If you're one of the millions of Americans with growing debt, here are some things you can do.
First things first: Decide how aggressively you actually want to pay down debt. Not all debt is created equal, and paying off debts like a mortgage or a student loan ahead of schedule may not make sense if your loans are at a low rate and you can get higher returns by investing. You also don't want to prepay student loan debt if you could potentially qualify for loan forgiveness by working in public service.
However, you should do your best to pay off "bad" debt as soon as possible. Auto loans fall in the "bad" category because you're paying interest on a depreciating asset, and credit card debt should be prioritized because of its high interest rates. Paying off these debts as soon as possible can save you huge sums of money in the long run.
The debt snowball involves paying as much extra money as you can toward your debt with the lowest balance, while making just minimum payments on everything else. Once the lowest balance is paid off, redirect all the money you were putting toward that debt -- plus any extra you can -- to the debt with the next-lowest balance. Then keep going until all debts are paid off.
The math on the debt snowball method may not make sense if you have debts with very high interest rates. In these circumstances, you may want to devote as much extra cash as you can toward your high-interest debt until it's gone. However, research has shown that small wins keep you motivated, so you may want to try other tricks to stay on track if you choose this approach -- like making a visual depiction of your debt using a debt thermometer and coloring in the amount you've repaid.
Whichever approach you take, the most effective method of debt repayment usually starts with making a budget so you can find ways to cut spending and put the savings toward your debt. The less you spend, the faster you can dig your way out of the hole.
You'll also want to build up an emergency fund to cover unexpected costs so you can avoid going back into debt.
You don't have to be average about debt
While having debt is normal, you don't have to be average when it comes to credit cards and consumer debt. You can decide to pay cash for reliable unused cars instead of continually taking out new-car loans as soon as your old vehicle is paid off, and you can make a commitment to get out of credit card debt and not get back into it.
While it may take a little time, being free of consumer debts -- even if you decide not to prepay your mortgage and student loans -- can give you a lot more money to invest for the future.
You'll also have peace of mind knowing you don't owe creditors any money, and default isn't something you'll have to worry about if you hit any bumps in the road.
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