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Household Debt Is Enslaving Americans


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Consumer debt in America is rising at an alarming pace. The average household has thousands in credit card debt alone, followed by thousands in student loan debt and thousands more in auto loans. Add a mortgage on top of that, and the sum seems insurmountable to many households.

The economy is improving from 10 years ago when the recession hit, but now that lenders are more willing to hand out money, debt is effectively enslaving the American people.

household debt

Average American debt

Here are a few of the most striking American debt statistics according to a recent Nerdwallet Report.

  • The total pool of consumer debt has surpassed $1.3 trillion.
  • The median student loan debt for a person who has attended some college or graduated from college is more than $49,000.
  • The average household credit card debt is about $5,000 with the median debt at more than $16,000.
  • The average mortgage debt is nearly $173,000.
  • The average auto loan exceeds $30,000.
  • Personal loans and other miscellaneous debt are more than $10,000 per household.
  • The total average of debt combined (including those who have no debt at all) is $139.5 thousand per household.

Cause of rising debt in America

The economy took the biggest downturn in nearly a century at the end of 2008, and the country has been working hard to recover ever since. A recession of that magnitude has a bigger effect than many people realize, including an immediate lending freeze across the country.

Now that things are looking up, banks are more willing to lend, and they have been doing so at increasingly high interest rates. What's more, the Federal Reserve was very slow to raise rates following the recession, which puts a heavy burden on those with loan and credit card balances. Rather than paying the higher rates themselves, banks increase your interest payments. It is one of the many hidden ways a changing economy has a negative impact on the consumer.

There is also a huge gap in spending and income. The Nerdwallet report shows half of the eight major spending categories in the U.S. have grown at a faster rate than the median income. Medical expenses, for example, have risen about 57% while the median income has only gone up by 28%. This leaves Americans scrambling to cover their mounting expenses.

Unfortunately, credit cards and personal loans are among the top resources for making ends meet. As expenses rise, consumers without enough annual income to cover their expenses feel they have no other choice, even as interest rises. Now, many consumers feel enslaved by what they owe.

Getting out from the shackles of debt

The rate of rising credit card debt is up 6.2% from just a year ago. It is a sign of a difficult economy, but it does not have to mean paying off debt for the rest of your life. Just as the economy must adapt to difficult circumstances, indebted consumers can also make some lifestyle changes to improve their situations. Here is some expert advice to help consumers limit their personal debt.

Refinance your auto loans

The experts at Auto Loan recommend refinancing an auto loan with a different lender to get a better rate. "Some people refinance their auto loans with the same lender they worked with in the first place, but this is not a requirement," they advise. "In fact...you [can] get a better deal from a new lender."

Categorize your debt to pay it off faster

This comes from Charles Hughes, a certified financial planner in New York. "Let's say you have four credit card debts. Instead of making four equal payments on all of the cards, consider making the biggest payment on the card with the highest interest rate," he says.

Try a personal loan for credit card debt

"Use a personal loan from a bank or credit union to consolidate credit cards and other debt," advises Gil Garcia, a credit counselor and educator in Orange County, California. "Personal loans have fixed interest rates that are traditionally lower than credit card interest rates."

Change debt behaviors

If you are not able to change your bad spending habits, advises Mark Acchione, Chief Investment Officer of Capital Markets, you will never be debt-free. "Don't let a big those seasonal commission or bonus check give you added confidence to spend," he says. "Break that big annual bonus into three parts; debt reduction, major purchase and savings."

Debt has become a way of life for many Americans. If it becomes more of a prison sentence than a help, however, it is important to change a few things. As the economy changes, roll with the punches and work your way to greater financial independence.

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