Facts About Debt in America

Debt held by individuals is called the consumer debt. It comes in different forms:

  • Home mortgages;
  • Credit card debt;
  • Auto loans;
  • Personal loans;
  • Student loans
  • Payday Loans and etc.

Most citizens of USA have different kinds of debt. Some people have to repay several of them simultaneously. It becomes a serious burden for their budget.

The average debt of each person living in the USA is approximately $38,000. This amount was less a year ago while the number of people in debt has considerably increased. If 2 years ago 27% of US citizens didn’t have any debt, at present only 23% of people can state it. These figures were revealed by Northwestern Mutual’s 2018 Planning & Progress Study.

Despite the fact that Americans are wary about borrowing, they are up to the neck in debt. In accordance with survey, the main source of debt are credit cards and mortgages. The student loans and car loans take the second place in this anti-rating.

The figures are based on the data obtained from 2000 adults with 600 millennials among them.

Adults up to 24 have to repay the student loans, the kind of debt that is called ‘good’ thanks to low percentage. Besides, they can derive benefit from tax advantages. The payday loan can’t be referred to good debt thanks to high cost of this loan.

The Statistics and Analysis of the Main Types of Debt

Consumers debt was coming closer to $14 trillion in 2018. There are 4 basic kinds of debt:

  • Mortgage debt
  • The amount surpassed $9 trillion. This kind of debt is not that bad for the economy overall. It means that the housing market is recovering.

  • Car debt
  • The amount has risen to $1.65 trillion after the low-interest rates were introduced in 2008. The measure was taken to overcome recession. The consumers received a good motivation to apply for car loan thus forming a trend that still continues. The rates are preserved on the same level and the number of auto loans given out as a rule for 3-5 years keep on growing.

  • Credit Card Debt
  • The amount of this type of debt exceeded $829 billion. It was $784 billion a couple of years ago. Such debt affects the budget of the person considerably as this is revolving debt that should be paid off monthly. This type of debt takes 26% of the total debt taken out by Americans.

    The amount of credit card debt has increased after the Bankruptcy Protection Act of 2005 was accepted. Since people faced problems filing for bankruptcy they had to resort to credit cards again. People often covered their sudden medical expenses in this way.

    As Gallup survey states, 76% of people in USA have at least one credit card. Actually, the average American has about 3 credit cards. The half of US citizens have credit card debt.

    The average person owes more than $9000 in credit card debt.

  • Student loans

The amount of this debt exceeded $1.4 trillion. The figure has increased $64 billion within the last 2 years. The good thing is that the loan is guaranteed to a student at low interest rates. This is a favorable situation for education and for students.

Situation With Debt in Different Age Groups

  • Young people ages 18-25
  • The representatives of this group have to repay the student loans mainly. This is the most popular debt among them. Student loans make 28% of borrowed amount in this age group. The credit card debt is on the second place. In this way, gen Z and younger millennials combine good and bad debt. If the student loan is low interest debt, the credit card debt requires repayment of high interest.

  • People from 25 to 34

The main source of debt in this age group is credit card debt. It refers to 25% of the debt. Then follow student loans and make 16% of borrowed amount. The portion of mortgages is not that high in this age group – just 3%.

In general, the net worth of US citizens from 18 to 35 has decreased by 34% since 1996. The millennials have to struggle through the financial problems that previous generations didn’t have. It happened because of:

  • 1. Higher education expenses (increased 65% within 10 years);
  • 2. Food costs (increased 26%);
  • 3. More expensive health care (by 21%);
  • 4. More expensive housing (by 16%);
  • 5. Higher transportation expenses (by 11%).

As a result, such expenditures as rent, healthcare and education make 17% of their budget instead of 12% 10 years ago.

  • Generation X – from 35 to 49
  • The main debt in this age group is home mortgage. It makes 32% of the amount Gen X owes. The credit card debt takes the second place. The car loan and tuition follows it.

  • Baby boomers – over 50

People of this age have to repay home mortgage, credit card debt and car loan. The problem with baby boomers is that many of them don’t have any savings for retirement despite their age. Only about 30% of baby boomers cared about it. However, they have saved unsubstantial amount of money – less than $25.000. Consequently, such people will work longer before they retire.

How Debt Affects the Economy and Society

The specialists assure that 70% of US GDP (gross domestic product) is obtained from consumer spending. It may seem that it doesn't matter how people spend money but spending habits have a huge effect upon the economy of the country. The debt is able to fuel the economy of the country and shape the financial landscape. It affects many issues and transforms the society.

Let us look how it happens. We described the situation with new age consumers above. Adults from 18 to 35 happened to be in more challenging economic conditions than previous generations. These circumstances play a huge role.

How does this situation affect the spending behavior of new age consumers?

In accordance with survey, people to 35 put off some major purchases such as a home-buying. They also postpone marriage because such expenses become a heavy burden for them. People from 18 to 35 tend to spend less on clothing than the same age group 50 years ago. It affected the apparel industry considerably. In the effort to compete with fast fashion chains such as Zara and H&M the retailers started making cheaper clothing to sell it at affordable prices. As for the consumers, they prefer casual wear that is less expensive than formal wear and formal suits.

Tight financial circumstances also lead to a delay in having kids. According to the results of the poll, the financial instability and huge expenses on kids were named as the key reasons for the delay. Thus, it affects the birthrate in USA, which is the lowest in 32 years at present. 44% of people from 20 to 45 said that they couldn’t afford to have children, so they just wait until the financial instability is over.

At the same time modern millennials tend to be more practical, saving emergency money for rainy days and contributing to a retirement account. As it turned out, they are highly disciplined financial planners.

The typical millennial perceives the financial success as being debt-free. At least, 60% of indebted respondents determined it this way. Though such goal can’t be called an achievement, it’s still hard to reach for most US citizens. Therefore, freedom from debt is perceived as accomplishment.

Debt of Average American by The State

It’s also interesting to track the situation from the geographical point of view. The problems of each state are clearly seen when figures are explored. The consumer debt of the state depends upon such things as cost of realty estate, college tuition, unemployment rate.

As you see from infographics, citizens of 13 states owe more than they earn per year. Taking into account that the mortgage wasn’t included the situation is lamentable.

The specialists worry that it can bring to another financial crisis. Missed payments are increasing.

Is Debt a Personal Problem?

When we examine the households with big debt, it may mistakenly seem to us that this is not our concern. That this is someone else’s problem and we shouldn’t think about it.

However, a heavy burden of debt causes social and economic problems.

The average American saves only 2.4% of income. Compare this figure with average savings of the household in China – 37% of income, according to the data of 2016.

Effect of Consumer Debt on the Economy

On the one hand, the rising debt is not that bad for the economy. It stimulates the economy and raises the consumption level. This gives a boost to the industry and production. However, it works this way only when everything is fine. If the burden of debt is too heavy, it brings the opposite effect. The debt weighing down the consumers slows the economy as people start spending less. Such situation happened in 2007 when the mortgage debt caused the recession in the USA. So, the risks of rising consumer debt are evident therefore financial advisors warn about the possibility of collapse. The government should do everything to prevent such situation. Borrowing should fuel the economy, open new possibilities for people and contribute to their personal wealth.