Unpuzzle Finance

Unpuzzle Finance > Personal Finance > The Average American Debt Listed And Explained

The Average American Debt Listed And Explained

Advertisments - Continue Reading Below

Some of the greatest financial minds have admitted that debt in the form of loans can propel people to greater heights.

Basically, what they mean is, as much as it’s possible to live completely debt-free, it’s not necessarily a smart move.

Advertisment - Continue Reading Below

And now, Americans are drowning in debt trying to acquire the better things in life like houses, cars, and education.

The annual American debt is composed of both good debt and bad debt. Good debt is an investment that will grow in value or generate long-term income.

Student Loans

Student loans are a great example of good debt as they have low-interest rates and tax benefits.

They also get you through college and a college education increases your value as an employee and raises your potential future income. Taking out a mortgage to buy a home is usually considered good debt as well.

Bad debt, on the other hand, is debt incurred to purchase things that quickly lose their value and do not generate long-term income. Bad debt is also debt that carries a high-interest rate, like credit card debt.

In 2018, American household debt hit a record of $13.21 trillion, shared by about 300 million people. Just 23% of Americans carried no debt in 2018.

According to Experian’s 2019 Consumer Debt Study, total consumer debt in the U.S. is at $14.1 trillion, with Americans carrying an average personal debt of $90,460.

Advertisment - Continue Reading Below

Credit Cards and Mortgages

Most Americans have a combination of credit cards, student loans, mortgages, car loans, personal loans as sources of debt. 

Credit cards and mortgages tied as the leading source of debt, followed by student loans and car loans. The average American now has about $38,000 in personal debt, excluding home mortgages.

According to Northwestern Mutual’s 2018 Planning & Progress Study, that’s up to $1,000 from a year ago.

The average American debt differs according to the different age groups. This is because the different age groups are at different points of their lives hence have different responsibilities and need for debt. 

When comparing the average American debt by age, factors like income and life events may play a role in how consumer debt figures shake out.

For the younger millennials, theirs is approximately $22,000 mostly composed of student loans, as would be expected.

From age 18 to 24, most of these young Americans are striving to get a degree and don’t have as many responsibilities. 

At least experts consider student loans to be “good debt,” because they are typically low cost and may have tax advantages.

Advertisment - Continue Reading Below

Millennials And Debt

For older millennials, they had an average consumer debt of $78,396 in 2019, a 58 percent increase from $49,722 in 2015.

They are aged between 25 and 34 and credit card balances are the leading source of debt for them. This makes up just a fourth of what average older millennials owe.

According to Northwestern Mutual, student debt accounts for about 16 percent, while mortgages make up just 3 percent.

“As you grow older, your expenses increase.

The additional pressures that come onto the pocketbook only grow, and your disposable income shrinks in a lot of cases, even if your salary is growing,” Holbrook tells CNBC Make It.

For older Americans, their average debt is approximately $135,000. Before hitting 50, most of them get home mortgages and this is the leading source of debt for them.

Credit card loans are also huge for them and things like education and car loans come last.

Although they boast of less debt than their younger counterparts, they are also notorious for not having a lot of savings despite being close to retirement.

Main menu