Patrick Henry, a well-known patriot, declared “Give me liberty… or give me death!” declared the founding fathers of the United States of America.
The country’s motto has altered as a result of the COVID-19 pandemic’s economic shock “Give me debt instead of financial freedom!”
According to the Federal Reserve, household debt in the United States reached a new high of $14.6 trillion in the spring of 2021. That check would be $14,600,000,000.00 if you had to write it.
Fortunately, the debt is shared by over 340 million people. Who, on the other hand, is more likely to become in debt?
It all comes down to age, income, ethnicity, family structure, and educational attainment. Although demographics do not directly influence one’s debt, it is crucial to be aware of them.
It may inspire you to defy the odds and achieve financial independence. Here’s a rundown of debt’s recent history and important demographics.
What is the number 1 debt in America?
As of the third quarter of 2021, Americans owed $15.24 trillion in debt, the majority of which was made up of home mortgages, which totaled $10.44 trillion. The second-largest component, 1.58 trillion dollars in student loan debt, was the second-largest component. What is the significance of consumer debt?
What is the average American debt in 2019?
Debt, on the other hand, carries some risk and can be costly. Not only do you have to pay interest and fees, but any type of borrowing necessitates timely payments in order to keep your account and credit score in good standing. While learning how credit works and establishing lifelong money habits, it’s not uncommon for consumers to make a few typical blunders.
That is why it is critical to have knowledge: We looked into how much debt the average American has at every stage of their lives, breaking it down by total balance(s) and kind, using 2019 data from credit bureau Experian, so you can get a big-picture sense of how much Americans are borrowing, and why.
The average American owes $90,460 in consumer debt, which includes everything from credit cards to personal loans, mortgages, and student loans.
Knowing where you stand can help you decide where to go next on your financial journey, in addition to remaining informed about financial planning, reading advice on saving for retirement, and mastering credit card basics.
At what age should you be debt free?
In 2018, Kevin O’Leary, a “Shark Tank” investor and personal finance book, stated that the best age to be debt-free is 45. According to O’Leary, you enter the second half of your work at this age and should therefore increase your retirement savings to ensure a good retirement.
While following O’Leary’s recommendations would put you in a good position to retire in your mid-60s or sooner, the decision to pay off debt is complicated, especially for homeowners (more on that below).
If you have high-interest debt, such as credit card debt or an auto loan with an annual percentage rate in the double digits, it makes sense to follow O’Leary’s suggestion and pay it off as quickly as possible. Keeping a credit card balance may easily cost you hundreds of dollars in interest and take years to pay down unless you prioritize a strategy.
How much debt is OK?
Lenders employ a uniform method to evaluate when debt becomes an issue, regardless of whether you make $1,000 per week or $1,000 per hour. It’s known as the debt-to-income ratio (DTI), and the formula is straightforward: recurring monthly debt minus gross monthly income equals debt-to-income ratio. It’s expressed as a percentage, and in general, you want it to be less than 35 percent.
Your regular monthly debt includes things like your mortgage (or rent), car payment, credit cards, student loans, and any other payments that are due on a monthly basis.
Your gross monthly income is the amount you earn before taxes, insurance, Social Security, and other deductions are deducted from your paycheck.
Assume you pay $1,000 per month on your mortgage, $500 per month on your auto loan, $1,000 per month on credit cards, and $500 per month on school loans. So your total monthly recurring debt is $3,000?
The immediate inference is that you drive a great car, but that is irrelevant to our conversation. What matters is your gross monthly revenue of $6,000 per month. Let’s get down to business.
Recurring debt ($3,000) divided by gross monthly income ($6,000) equals 0.50, or 50%, which is not a favorable ratio.
You’ll have a hard time securing a mortgage if your DTI is higher than 43%. A DTI of 36 percent is considered acceptable by most lenders, but they want to lend you money, so they’re willing to make an exception.
A DTI of more than 35 percent, according to many financial gurus, indicates that you have too much debt. Others push the limits to the 36 percent-49 percent range. The truth is that, while DTI is a useful measure, there is no single indicator that debt would lead to financial ruin.
Use our Do I Have Too Much Debt Calculator to see what percentage of your monthly income goes to credit card debt and mortgage payments, as well as how much money is left over to pay your other expenses.
Which generation has the most debt?
The majority of federal student debt is concentrated among Generation X, which has a total debt of $1.57 trillion. With school loans, the average Baby Boomer owes more than the average Millennial. On a national level, however, Millennials have a higher aggregate debt than Baby Boomers.
Is debt always bad?
Debt isn’t always easy to categorize as positive or negative. It is frequently determined by your own financial status as well as other variables. Certain sorts of debt may be beneficial to some people while being detrimental to others: Taking out a loan to pay off debt.
What is the average credit card debt in America?
You are not alone if you have credit card debt. According to the 2019 Experian Consumer Credit Review, the average American has $6,194 in credit card debt. Alaskans also have the greatest credit card debt, with an average balance of $8,026.
Furthermore, according to the latest data from the Federal Reserve Bank of New York, credit card debt in the United States reached a new high of $930 billion in the fourth quarter of 2019.
How much debt does the average American have 2020?
“You have to spend money to make money,” you’ve probably heard. Economists disagree on this, but it’s undeniable that people spend more when they earn more.
According to a CNBC study from 2021, the average American is $90,460 in debt. This comprised credit cards, personal loans, mortgages, and school loans, among other consumer debt items.
What is the average debt of a 35 year old?
If you have debt, you should compare yourself to the average debt by age bracket rather than to all US customers.
Where you are in life has a direct bearing on how much debt you should anticipate. When you compare yourself to people in similar stages of life, you might have a better idea of how you compare. The average amount of debt in the United States is broken down by age.
—24 year olds = $9,593
According to Experian, the average debt for the “Gen Z” age group is $9,593. For this age group, student loans are the most common source of debt, followed by credit card debt.
Student debt is one of the better possibilities among the several sorts of debt. It is usually low-cost, which means it has a low interest rate. Tax savings are also available with student loans. The funds will also be used to further one’s education, which will assist them get a well-paying job after graduation.
—34 year olds = $78,396
One of the worst sorts of debt to have is credit card debt. Credit cards have hefty interest rates, which can quickly add up to a mountain of debt.
According to Experian, younger millennials have an average debt of $78,396, mostly due to credit card bills. Only 16 percent of this age group owes money on school loans. Furthermore, only 3% of people are underwater on their mortgage.
Expenses are one of the reasons for this credit card debt. Lifestyle changes, such as having children or pets, cause expenses to skyrocket in this age range. As a result, the amount of money available for discretionary spending decreases. People may take on debt if their disposable income decreases faster than their wage grows.
—49 year olds = $135,841
According to Experian, older millennials in this generation have a greater average debt because of home mortgages. Following credit card debt, school and auto loans are the most common sources of debt.
Some financial experts, such as Kevin O’Leary, believe that by the age of 45, which he deems middle life, you should be debt-free.
In an interview with CNBC Make It, O’Leary said, “When you’re 45 years old, the game is more than half over, and you better be out of debt because you’re going to spend the rest of the innings in that game to accrue money.”
It’s an ambitious aim, especially because it includes mortgage payments. Even if people can’t adjust their mortgage or auto payment amounts, they can reduce their average credit card debt and the interest that accrues as a result. (I’ll go into more detail about this later.)
years or older = $96,984
According to Experian, the average debt of baby boomers is $96,984. The three largest debt sources for persons in this age bracket are mortgages, credit card bills, and auto loans.
Despite the fact that this is less than the average debt of individuals aged 35 to 49, it could still cause problems for two reasons. One, the baby boomers (those aged 50 and up) are approaching retirement. Having debt at this age may make retiring more difficult. To increase their financial worth and have a decent retirement, Baby Boomers will have to work longer than expected.
Furthermore, the costs of health care must be considered by the elderly. An unexpected health-care expenditure, in addition to the costs of prescriptions and medical appointments, could add to debt. (Although unplanned medical events can happen at any moment, the risk increases as you become older.)
If a large portion of a household’s income is spent on medical bills, consumers may fall behind on other payments, raising interest rates and increasing overall costs.
Is 15k a lot of debt?
You’re not alone if you have a large credit card debt, such as $15,000 or more. In 2019, the average household with revolving credit card debt — debt that is carried from month to month — had more than $7,000 in revolving amounts. That’s merely the standard deviation.
How much debt is Canada in?
The obligations of the government sector in Canada are referred to as “government debt” or “public debt.” The market value of financial liabilities, or gross debt, for the consolidated Canadian general government in 2020 (the fiscal year ending 31 March 2021) was $2,852 billion ($74,747 per capita) (federal, provincial, territorial, and local governments combined). In 2020, gross debt as a percentage of GDP was 129.2 percent (GDP was $2,207 billion), the highest amount ever recorded. The federal government’s debt accounted for about half of all debt, or 66.4 percent of GDP. The large deficits ($325 billion) generated to support multiple relief measures, particularly in the form of transfers to people and subsidies to businesses during the COVID-19 epidemic, drove the increase in debt in 2020.
The impact of historical government deficits is mostly reflected in changes in government debt over time.
When government spending surpasses revenue, a deficit occurs.
Because the beneficiaries of the goods and services provided by the government today through deficit financing are typically different from those who will be responsible for repaying the debt in the future, deficit financing usually results in an intergenerational transfer.
(Borrowing for a one-time purchase of an asset that supplies commodities and services in the future that are matched to the loan repayment expenses, for example, issuing debt today that is repaid over 50 years to finance a bridge that lasts 50 years, would not result in an intergenerational transfer.)
What is the 20 10 Rule of borrowing?
Consumer debt payments should be no more than 20% of your annual take-home income and no more than 10% of your monthly take-home income, according to the 20/10 rule.
Learn how to calculate the 20/10 rule of thumb and the benefits and drawbacks of adopting it.
