Average American Debt

Average American Debt

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Average American Debt

 Recent estimates show the average household has more than $90,000 of debt. That estimate soars to more than $130,000 when statistics take into account only households with debt.

The average household pays approximately $7000 in interest each year – just having debt can cost you thousands of dollars a year, even if you are meeting your monthly payment obligations.

Debt is something most people have, at least at one point or another in their lives. Even people who are careful not to extend themselves beyond their means usually have a mortgage or some student loan debt.

The truth is debt isn’t all bad. Though it’s nice to pay for large purchases, like a home, in cash, there are benefits to having a mortgage you can afford. It gives you an opportunity to build credit and it provides tax benefits. But in order for debt to be a good thing it needs to be manageable and something you can afford to pay on an ongoing basis, even if there is an emergency.

Unfortunately, the average American debt has gone far beyond what is considered good or manageable.


Why So Much Debt?

A good portion of the debt Americans have relates to their mortgage, but debts also include student loans, vehicles, and credit cards – things Americans have taken on debt to pay for over the course of many decades.

The difference is now prices have risen and earnings have not.

The cost of living has exceeded growth of income for more than a decade now. Since 2003, median incomes have risen by about 26 percent but the cost of necessities – medical care and various living expenses – have risen a great deal more. The cost of food alone has seen more than a 50 percent increase in that time.

Making the problem worse is the fact that debt itself grows. Even if you avoid using credit cards or taking on any other new debt, your existing debt can increase if you aren’t careful.


Student Loan Debt

College costs have also risen, too. Student loan debt now accounts for the second highest amount of debt, exceeded only by mortgages. By the end of 2016, more than $1.31 trillion dollars in student loan debt was owed by Americans. The average household has more than $10,000 in student loan debt, but since less than 20 percent of the population has any student loan debt that number soars to an average of more than $49,000 per household, often with more than one resident with student loan debt.

There is also evidence that the majority of this student loan debt comes from new graduates who have been forced to deal with astronomical college costs. Data shows the cost of college has increased by more than 186 percent over the last 10 years. Many college attendees have no choice but to pay for college with loans, and it’s taking a toll. One estimate showed the average debt owed by 2016 grads was more than $37,000.

The good news is student loans tend to have lower interest rates (much lower than many credit cards), so it’s much less expensive to borrow money for college than it is for many other things people accumulate debt to purchase. Student loan interest, much like mortgage interest, is also tax deductible – another advantage it has over credit card interest and debt.

People struggling with student loan debt also have a variety of programs available to them that help with their debt. Borrowers have the option of forbearance or deferment (make sure you understand how interest is handled before implementing either of these options) and there are also “Pay as You Earn” programs that keep monthly student loan payments affordable and based on a person’s income. Some borrowers are even eligible to have their balances waived after a certain time. There are also balance forgiveness programs available for teachers and public service employees.

Though there are some indications that the situation might be improving, but other estimates show the student loan debt is likely to grow. Tuition costs aren’t showing any signs of decreasing, though they are rising more slowly, which could help people get a handle on the cost of college and student loan debt.


Will Your Debt Outlive You?

Even if you are able to meet your monthly payment obligations, your overall debt might never seem to decrease. Putting a dent in your debt can be a daunting task and too many people are living paycheck-to-paycheck, just one financial emergency away from disaster.

For many, debt feels like a never-ending process, and for many, it is.

Studies show most people die with debt. This means their estate still owes money even though the person is no longer living. Most of this is mortgage debt, but the average amount of debt for people who died without a mortgage was nearly $13,000. The credit reporting agency Experian looked at the debt of consumers who were alive in October 2016, but had died by December 2016. Well over half of the people assessed died with credit card debt, and more than a third had mortgage debt. Many also died with auto loans, personal loans, and student loan debt.


What You Can Do about Debt

So what can you do if you’re one of the millions of Americans dealing with debt? If possible, work on paying your debts down. Focus on the highest interest loans first, while also putting away a bit of money for emergencies. This emergency fund will prevent you from using your credit cards and undoing any headway you’ve made if something unexpected occurs.

If you’re struggling to afford your monthly credit card payments – or you’re able to afford just the bare minimum payment month after month – it might be time to take drastic measures. Arranging a payment plan that helps you get a handle on interest and fees, or negotiating a settlement on the portion of a large balance might help you get on top of your financial issues. Bankruptcy is also an option and should be something consumers consider sooner rather than later.

If you are being sued for debt, take action now before the situation becomes worse.

For more information or to discuss your debt with someone who can help, contact Weston Legal at 1.800.220.4318 to schedule a consultation.

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