Do You Have More Debt Than the Average American?

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American credit debtSince the beginning of the recession, Americans have been saving more, paying down debt, and curbing spending. Now, a new study shows that individual debt is falling at the fastest rate in nearly 50 years. But not everyone is contributing positively to that statistic, and many Americans are still struggling with overwhelming debt.

Americans have increasingly been paying down their mortgage and credit card balances. But even as total consumer debt has diminished by approximately $100 billion (down to a mere $11.4 trillion), more than $1 trillion of our current debt load is delinquent, and nearly $800 billion of that is overdue by more than 90 days. And while owing less is a good thing, the study shows that we're burning through our savings to pay our debts down. The overall net worth of the average American is down nearly 40% from 2007 to 2010.

Much of that decrease has come from the steep decline in home values. The National Association of Realtors recently released statistics on the sales of existing homes in May 2012, which showed mixed news. Overall, home sales are down, but the median sales price is up to $182,000.

Credit card debt may be the third largest form of debt in the U.S., but it's decreasing. Americans paid off 5.2% of outstanding credit card debt in 2012, which is 12% more than in 2011, but 8% less than in 2010.

Borrow, Learn, Earn?

Overall household debt has fallen steadily since 2008, but the same can't be said for student loan debt, the level of which has risen every quarter since 2003. It reached $904 billion in the first quarter of 2012, an increase of $30 billion from the last quarter of 2011.

The average student loan debt is approximately $23,000. Last year, for the first time, Americans owed more on student loans overall than they did on their credit cards.

Today, the average American owes approximately $47,000. To put that number in perspective: It costs approximately $35,000 to start either an H&R Block or a 7-Eleven franchise; $40,000 can buy a three-bedroom house in some parts of Orlando, Fla., (and home prices are similar in hard-hit neighborhoods across the country); and one year at a private high school will run about $50,000.

Our average level of debt is also more than most of us earn in a year. For 2010 (the latest year for which figures are available), the Social Security Administration calculated that the average American salary was $41,673.83.

All Debt Is Not Created Equal

While it's helpful to get a sense of where Americans are struggling financially, such statistics are a mere snapshot of much larger, denser, and more complex issues.

The level of credit card debt isn't broken down into categories -- for instance, discretionary spending versus necessary living expenses. Is someone putting a new iPod on the credit card, or are they buying food for the family? Hidden in credit card debt could also be educational expenses posing as discretionary spending. Are students who were unable to obtain educational loans using their plastic to pay for classes or books? Or, from a different angle, have homeowners pushed debt from the credit car to the mortgage category by taking out home equity loans to pay off high-interest credit cards?

Such snapshots also don't take into account the wide range of interest rates each type of debt carries. As of today, the average rate for a 30-year mortgage is around 3.6%. For a balance-transfer credit card, an average rate is more than 16%. The standard rate for federal student loans is 3.4%. (That was set to double to 6.8% this week, but on Sunday, Congress slipped in just ahead of the deadline and passed a deal to extend the lower rates for another year.) But looking at the overall debt load each American carries, regardless of interest rates, is the necessary starting point of a much longer struggle.



Molly McCluskey is a regular contributor to The Motley Fool. Follow her on Twitter at @MollyEMcCluskey.

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June 22 2013 at 3:52 PM Report abuse rate up rate down Reply
rryanm990

It comes down to discipline. What do you need vs want. Do we need 250k houses? or do we want them for what they provide us? Do we need New cars or can we just drive our old cars to the ground and be content. Americans are disgusting. We grip and complain about money yet most of us are in the situation we are in because of the choices we have made since we started making money in our teens.

Im 21 and have no degree yet. I go to school part time when I can. I make 25k a year. I drive a beater car and pay 32 dollars a month for insurance and live in a crap apartment with a roommate. i don't own a T.V. or iPhone or anything of the such. I pay twenty dollars a month for my phone.

By Years end I will have more saved than I make in a year. Not because I make a lot of money, but because of my choices. There's little to no excuse for this much debt in America. We have mixed visions of what we need and want. This country is pathetic. This is coming from a military member who has seen true poverty and deprivation. We are a disgusting nation. Utterly appalling.

September 10 2012 at 9:49 PM Report abuse rate up rate down Reply
marine1942

Hey, just keep on spending. That is Obama's answer. If he is your leader then you must follow.
Too bad we do not have debter's prisons.

July 09 2012 at 9:00 AM Report abuse rate up rate down Reply
BABIN

Well...In my opinion if you DON'T have the money (cash) to buy stuff how in God sake you will have double or triple money to pay off credit with interest...?
If credit don't exist in this system ALL price all stuff will have NORMAL price and regular peoples will have Normal living yearly wages...
Before many. many years avarage american personal debt is very low and look now...who create that...answer is simple CREDIT...
Because with credit living wages will ''stall'' for years and years and business will give you credit to fill out that hole...(because you don't have anymore choice wages is very low to live normal life) but with credit you will have more personal debt and if you don't pay the debt you will lost everything, business will make huge profit...one side will be happy other side will not...win-lost situation...
WITHOUT credit living wages will follow living prices,(because business will give you more money to buy product if not business will go out of the business) no personal debt and top of that business will still make profit but not that huge...both sides happy...win-win situation...
Without that much credit this country works just fine before many years...
With that much credit anybody can see how works this day's...
AMEN......

July 08 2012 at 4:41 AM Report abuse rate up rate down Reply
vlady1000

I wonder if all those huge mortages that people now owe ZERO on, due to the short sales, walking away, etc were accounted for in their numbers. That may be one reason the avg debt is down so much the last few years. Does not mean the debt is going paid off, just written off.

July 04 2012 at 9:35 PM Report abuse rate up rate down Reply
vlady1000

"Average American debt is 47,000"....If I remember correctly, the national debt is equal to about $106,000 per person.....What a sad statement that is !!!!!!!!!!!!!!!!!

July 04 2012 at 7:18 PM Report abuse +2 rate up rate down Reply
scottee

also, our government and most people think consumption drives the economy....but really...savings and investment drive the economy...think about it.

July 04 2012 at 7:43 AM Report abuse +1 rate up rate down Reply
scottee

I don't...
but for as long as I can remember, the federal government has rewarded spending and debt via the tax code and punished saving and investment the same way. is this okay with everyone???

July 04 2012 at 7:40 AM Report abuse +1 rate up rate down Reply
sjpxmas

LIVE CONSERVATIVE,,, AND WHEN YOU DIE, SOMEONE ELSE WILL SPEND YOUR MONEY...

July 03 2012 at 7:09 PM Report abuse rate up rate down Reply
MONTOOTH

In the past, the messages to "save" and "invest" have not been as frequent, popular or pervasive as the messages to "spend" and "buy." After all, this capitalist system of ours, built around 'consumerism' would be shooting itself in the foot. Nonetheless, if we want folks to be ready for retirement, be able to pay for college and cover healthcare costs, we'd better start sending the message that saving and investing, is THE most cool thing you could ever do for yourself, your family and ultimately your country.

July 03 2012 at 11:00 AM Report abuse rate up rate down Reply
1 reply to MONTOOTH's comment
mastercraftmyers

Could someone please share this with the Obama Admin.
Keep spending Washington. I think we have a surprise for you in NOVEMBER 2012

July 04 2012 at 6:17 AM Report abuse rate up rate down Reply