In a NutshellOverall debt of American households continued its upward tick at the beginning of 2019. But just how much debt are we in — and what can we do about it?
Do you ever feel as if you’re in over your head, buried under the weight of debt? Whatever your situation may be, you’re not alone. In fact, millions of Americans struggle with debt.
So, what do the numbers look like? According to recent data compiled by the Federal Reserve Bank of New York, total credit card balances amounted to $848 billion in the first quarter of 2019 — a $22 billion decrease from the previous quarter.
That figure is just a fraction of what comprises total household debt. From credit card debt to mortgages, from student loans to auto loans, one thing seems clear: Americans everywhere are seeing red.
At a glance: U.S. household debt trends
The state of debt today
People take on debt for all kinds of reasons, whether it’s going back to school, paying for a house or dealing with one of life’s emergencies. Regardless of your individual circumstances, being in debt can be tough on your wallet — especially once you factor in the added interest costs.
But even as you work to chip away at your outstanding loans and credit card balances, it can be comforting to know that debt is more typical than you think.
According to The Pew Charitable Trusts, a full 80% of Americans have some form of debt. Not only that, but 70% of respondents to a 2015 Pew survey said debt was a necessity in their lives (though they’d obviously prefer not to have it).
So, how much debt are Americans really in? That’s a somewhat complicated question, but one thing’s for sure: U.S. household debt continues to rise. The first quarter of 2019 saw total household debt increase for the 19th quarter in a row, exceeding the previous peak of $12.68 trillion hit during the Great Recession of 2008 and climbing to $13.67 trillion.
How did we get here?
So, we’ve established that we’re a nation in debt. But how did we get to this point? As it turns out, multiple factors come into play.
“The rising cost of living, education and medical care have really hit the average American household hard,” says Stephanie Stewart, credit repair researcher at BestCompany.com.
Indeed, the cost of living has been rising — but wages haven’t kept up. From 2013 to 2017, average income before taxes rose 15%, according to the Bureau of Labor Statistics. At the same time, people’s expenses increased by about 17.5%.
The gap between income and expenses looms as a major factor driving American household debt toward unsustainable levels. But that’s just one part of the equation.
Student loan debt is another growing issue that continues to saddle more and more young borrowers, and health costs have skyrocketed, too. The Henry J. Kaiser Family Foundation’s 2018 Employer Health Benefits Survey noted that the average health premiums for family coverage have jumped 55% since 2008.
Throw all of these factors into a blender and you’ve got a perfect recipe for high American household debt.
Breaking down American household debt by category
Credit card debt
According to the Federal Reserve Bank of New York’s most recent Household Debt and Credit Report, credit card debt fell by 2.5% in the first quarter of 2019 and now stands at $848 billion. That’s a $22 billion decrease from the previous quarter. But what does it actually mean for the average American’s credit card debt?
Let’s crunch the numbers.
Based on U.S. Census Bureau population estimates, in July 2018 there were about 327,167,434 people living in America, with 22.6% of those people under the age of 18. That means roughly 77% (251.9 million) are adults eligible to apply for a credit card.
According to the Federal Reserve’s 2018 Report on the Economic Well-Being of U.S. Households, 81% of survey respondents said they had at least one credit card. If we consider this response to be representative of all American adults, per the U.S. Census, that means about 204 million Americans have a credit card. Divide the total American household credit card debt ($848 billion) by the number of cardholders (204 million), and we can estimate that debt per cardholder stands at roughly $4,157.
That’s a good chunk of change, but other factors play an even more prominent role in household debt. Let’s take a look at some of those other factors now.
For a lot of people, buying a house isn’t just part of the American dream — it is the American dream. After all, who doesn’t want a place to call home sweet home?
But having a place to call your own comes at a cost — and a pretty steep one too, considering that mortgage debt makes up the largest portion of total household debt.
For the first quarter of 2019, total mortgage balances rose to $9.24 trillion, a jump of 1%, or $120 billion, from the previous quarter.
The per-household numbers tell a similar story. According to Experian, the national average mortgage debt in 2017 was $201,811.
Obviously, mortgage debt can vary greatly depending on your individual circumstances, especially if you live in an expensive area like San Francisco or New York City. Regardless of where you live, though, there’s a good chance your mortgage makes up a significant portion of your overall debt.
Student loan debt
Student loan debt also plays an outsized role in total American household debt, coming in second behind mortgage debt.
As of the first quarter of 2019, student loan debt stood at a whopping $1.49 trillion. According to Experian, the national average student loan debt in 2017 was $34,144, with about 44 million Americans owing on student loans.
Student loan debt continues to grow, but not all borrowers are paying back their loans. A recent report compiled by the Federal Reserve Bank of New York states that 10.9% of student loan debt was either 90-plus days delinquent or, even worse, in default in the first quarter of 2019.
Total auto loan debt
Another type of debt that doesn’t seem to be slowing is auto loan debt. More Americans are taking on auto loans to finance their cars. Just how many? Currently, about 114 million auto loan accounts exist in the U.S., according to the New York Federal Reserve.
As of the first quarter of 2019, auto loan debt rose by $6 billion, amounting to $1.28 trillion. According to recent data compiled by Experian, the average new vehicle loan in the first quarter of 2019 was $32,187.
Total household debt
Credit card debt is often considered “bad debt” because of its high interest rates. While credit card debt certainly isn’t good, other types of debt overshadow credit card debt by a long shot.
At a glance: Total U.S. household debt by type as of the first quarter of 2019
|Type of debt
|Total household debt
As you can see from the above chart, it’s not just credit card debt that’s affecting American households. Mortgages, auto loans and student loans take an even bigger bite out of the average American’s budget.
How to get out of debt
Getting into debt is easy, but getting out of debt? Well, that’s another story. Interest can make it tough to get ahead and pay off the principal balance.
That’s why it’s generally a good idea to focus on paying off high-interest debt first. This method is often called the debt avalanche method of debt repayment, and it could help you pay less interest in the long run.
Additionally, you may want to take a good look at your budget and see if there are places you can cut back or negotiate a lower rate (it doesn’t hurt to ask). That includes your credit card debt, too.
“You may call your creditors and ask for a lower interest rate,” says Stewart of BestCompany. But before you do any of that, it’s time to get real with your debt.
“The first step to repairing your credit card debt is being honest about your financial situation,” Stewart says.
Facing that debt can be tough, sure, but isn’t being in debt harder at the end of the day? Taking action and coming up with a plan can help.
Start by listing your debts and the corresponding interest rates. Review your monthly income and expenses to look for budget leaks. Focus on the “big three” expenses: housing, transportation and food. Lowering expenses in those areas can have a big effect.
If you’re drowning in interest charges on your various credit card balances, consider a balance transfer, which could be a good way to consolidate debt onto a single card with a low introductory interest rate. Additionally, you could cut down on interest by making biweekly payments. The key is to try to pay less in interest so you can attack the principal balance.
Whatever your situation may be, you can take these steps to climb out of debt — even if the process takes longer than you might want it to.
American credit card debt per household is on the rise and total household debt has reached a new peak. Of course, these numbers should only be used as guidelines, as everyone’s situation is different.
So, what have we learned? It’s clear that many Americans are mired in debt, and you may be one of them — but it doesn’t mean you have to stay in debt. Remember: You are more than a statistic and more than your debt. By facing up to how much debt you have, you can take the first steps to get rid of it.