Most of us know, intuitively, that debt is a big problem, especially here in America.
Guaranteed, you don’t have to look very far into your circle of friends or family to find someone who has debt.
However, when we think of debt, most of us tend to associate it with credit card debt.
The reality is many people are saddled with student loan debt, medical debt, personal loans, or they might even owe their library for past due fees.
We’re going to take a look at the biggest statistics that show how big of a problem debt is today, and we’re also going to take a look at what solutions there are to solving it.
1) $1.3 Trillion in Student Loan Debt
That’s a staggering amount of student loan debt. To break it down further, that’s spread across around 40 million people, and graduates have an average of $35,000 in student loan debt.
I was “lucky” and escaped college with $18,000 in student loans, but I’m still paying it back, as are many of my friends outside the personal finance community.
Many graduates are having to manage these payments on a lower salary while trying to balance living expenses and having a social life. It’s not the easiest thing to do, and paying them off quickly requires a lot of dedication and sacrifice.
We’ve covered numerous ways graduates can make their student loan debt more manageable, but many often don’t know the repayment options available to them.
Besides this first statistic, 17% of borrowers are in default or delinquency, according to a 2014 report by The New York Fed. Defaulting on your loans means you haven’t made a payment in nine months, and has severe consequences for your credit.
The best thing you can do? Research your options. Are you eligible for repayment assistance? Can you cut down on your living expenses? The worst thing you can do in any of these cases is nothing. Not paying is not a solution.
2) $15,762: The Average Household Credit Card Debt
I have to say, I was a little surprised by how high this average was. According to a 2015 study by NerdWallet, that’s the figure for average U.S. household credit card debt.
Credit card debt is all too easy to get into. Credit cards are easily available to consumers, especially those who are younger and may not know better.
The key here is to educate yourself on how credit works. Way too many people have the misconception that credit cards are free money. You can buy whatever you want now, and pay back later.
While that’s true to some extent, it’s not free – you’ll pay a high price thanks to the 15% average APR credit cards have. Anything you buy on credit and don’t pay back right away will accrue interest, which means you’ll end up paying more in the long run.
Besides educating yourself, track your spending! If swiping your card leads to mindless spending, get into better shopping habits and learn to be a conscious consumer instead.
3) $28,381: The Average Auto Loan
Whew, yet another high average! I have to admit, these numbers are slightly scary to me, especially because student loan debt is the only debt I’ve had to deal with. I can’t imagine having the burden of $15k worth of credit card debt and $28k in auto loan debt!
I purchased my 2002 Civic back in 2009, and it has (thankfully) been going strong ever since. It may not be new and shiny, and it may not have a USB port in the front dash, but it gets me from Point A to Point B rather efficiently.
To be honest, I’d rather have a slightly older car because there’s so much that can go wrong with new cars and their computerized parts these days.
Remember, just because a six or seven year loan term is available doesn’t mean it’s a good deal. If you can, create a “car savings fund” specifically for repairs and a down payment on your next car. Get familiar with basic maintenance so you don’t have a difficult time keeping up with it.
Unless cars are your hobby, don’t spring for flashy and loud. There’s really no reason to get a Lexus versus a Toyota, or an Acura versus a Honda, aside from the name. The price difference isn’t worth it! Focus on what matters: safety, comfort, and practicality.
4) 1 in 5 Adults Struggle to Pay Medical Bills
This one is a sad statistic, and one that can’t really be prevented, depending on your insurance situation.
My grandma keeps meticulous records of how much her medications cost, and I was floored to hear how expensive many of them are. For someone living on a fixed-income, that can be hard to budget for.
When I had surgery a few years ago, insurance covered it, but if it hadn’t, I would have been looking at a bill that was easily over $10,000.
I know a few people who hesitate to schedule a doctor visit because of their co-payment, or because they simply don’t think they’ll be able to afford the service (especially true when it comes to dental work).
It’s absolutely awful that we have to second-guess whether or not to receive medical attention. That’s not how it should be, but in America, that’s what we’re dealing with.
You should know exactly what your insurance does and doesn’t cover, how much your deductible is, and what alternatives are out there. I would recommend having an emergency fund saved up depending on what you find, with a certain portion possibly dedicated to medical emergencies.
If you’re on specific medications, and you might be for a while, try your best to fit it in your budget. It’s important not to leave out medical expenses like this that can catch you by surprise.
At the very least, always try and negotiate your medical bills. I’ve heard several success stories with the billing departments in hospitals being willing to work with patients on a more reasonable repayment plan for their medical costs.
5) 47% of Americans Can’t Handle a $400 Emergency
I’m sure many of you have seen this statistic circulating around over the past few months. This has to be one of the most shocking statistics on this list. Really, one of the most shocking I’ve come across in a while.
$400 isn’t a whole lot of money for the average American earning around $40-50k. But the unfortunate reality is that many people are living paycheck-to-paycheck and simply can’t fathom how they would make room to save $100 per month, let alone $20.
The entire reason I keep a rather large emergency fund is because I grew up in this situation. My parents rarely had the savings to cover emergencies. Anything unexpected would set them back.
My mom had just enough leftover after paying bills and credit cards to live off of; that money was food and gas money for the week.
However, there were a lot of things they could have cut from the budget if they wanted to.
What is There to Do?
There’s no one-size-fits-all miracle debt solution, but there are a few basic principles you should follow if you want to avoid being part of these debt statistics.
First, know your numbers. Know your income, your expenses, your cash flow, your net worth, etc. You need to know what you can handle in case something does arise. Knowing numbers gives you power, too. Staying in the dark is worse.
Second, create a plan once you know these numbers. Do you need to save more, or pay off debt more? Increase your income, or cut back on expenses?
While you’re doing that, you need to think about your financial goals and create a plan for those as well. Getting clear on what you want out of life, and how you can use your money to get you there, will pave the way for better financial decisions.
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It’s extremely difficult to answer the question of what to do about these somber debt statistics in America, but the least we can do is educate ourselves and then make a plan of action for moving forward without debt.
What do you think is the most shocking statistic on this list? Are there any that didn’t surprise you? What do you think are the causes of these statistics?
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Yes, all of that is nuts. It’s hard to believe we are in such a rough spot when it comes to debt. It’s easy to forget what a huge problem it is when you aren’t in debt any longer, either. People need help! Most of all, they need to change their behavior.
So true, Holly. As I was going through these statistics I just couldn’t believe them. The only one I’m “close to” is student loan debt (from being in it and researching it extensively). But seeing how many people struggle to put away $400 kills me.
I’ve luckily never been in any debt (except for having a credit card balance for a couple of months due to loss of a job). I can imagine it is a huge burden and can really come in the way of achieving financial goals. One solution is for people to focus on increasing their income in order to pay down their debts as fast as possible.
I’ve only been in student loan debt, but my parents struggled with credit card debt for a while, so I knew not to go that route from the stress they were under. It definitely gets in the way of financial goals, and I agree that increasing your income can help a lot!
Thankfully I was blessed with a high-paying yet time-intensive job out of college & was single for those first 6 years. I had $50k in student loans and a $25k car loan immediately after I paid off my student loans (it was a Christmas present to myself).
I’m plan to teach my children to avoid debt as much as possible, yet not be stingy. It seems harder & harder ever year to avoid debt, especially college. In the 8 years since I graduated, tuition has increased 70% at my alma mater!
It’s great that you want to teach your children to avoid debt. I think being open about it can really help as they’re growing up – and setting a good example! Tuition hikes are not fun to deal with at all…every year I received a notice from my college that tuition was rising.
I can understand student loan debt and medical debt but credit card debt and auto loan debt is frustrating. I don’t want to get on my soap box but if you can’t afford it, don’t charge it. I’m pretty sure most people didn’t get into credit card debt paying for necessities. And $28k plus on auto loans!!! The two cars I’ve owned combined in the last 16 years don’t add up to that amount. I knew we had a debt problem but the $28k auto loan was very surprising.
I’m not sure about the credit card debt. As Aliyyah pointed out, sometimes it’s the only solution for people in a pinch who don’t want to turn to payday loans. People living paycheck to paycheck, who aren’t earning a lot, may need to charge groceries. Not that it’s a good habit to get into (and who knows if they’re spending the rest of their money on needless stuff), but I’m trying to give some people the benefit of the doubt.
I definitely agree on the auto loan, though. It seems like many “middle-class” cars (Camry, Accord, Sonata, etc.) are rising in price, or at least, coming with more and more options and trims, which pushes that price tag up. Heck, the highest trim on a Civic is $24,700 MSRP. People get sucked in easily, especially if the monthly payments are low (even if the term is 7 years).
I wonder about that, too. I think the student loan debt problem is just too big to ignore at this point. I’m hoping some sort of better solution arrives at some point. Needing a Ph.D. for an entry-level job would be insane!
Before I got control of my debt situation I was in the group who couldn’t handle a $400 emergency situation. My credit cards were maxed out and I was living pay check to pay check without a budget. I literally lost sleep worrying that some emergency would arise and I would not be able to handle it. You are totally right, you need to do something, anything, to not be one of these statistics. For me it was building a budget, reducing spend which enabled me to pay down my credit cards, building an emergency fund and tackle my student loan debt.
I’m so glad you’re out of that place and doing better! Lack of money causes a serious amount of stress. That’s one of the reasons I like having an emergency fund. That peace of mind is so worth it. Those are all great steps for others to take!
Boy, it’s hard to say which is most concerning or shocking. Debt is such a huge problem and these stats only bear that out. I think the one that concerns me is the medical bills one as that’s (in most cases) the one we can control the least – whether it be due to lack of good coverage or health issues. I’ve known several people who’ve had to declare bankruptcy due to medical costs and, otherwise, they were right on top of their finances. That being said, I think an argument can be made for any of these being most concerning.
I agree, John. It’s a worry on my mind as I’m no longer covered by my parent’s insurance come my birthday this year, and I’m battling with what kind of coverage to get, especially with the issues I’ve had in the past. It’s so unfortunate that something like a car accident can put people in such financial trouble.
Those numbers are ridiculous. Thankfully I’ve never had a car note that high or that much credit card debt. Student loan debt is a different story. I’m working hard to eliminate it though.
They really are, and student loan debt is a different beast for most of us (as is medical debt). Neither are really due to irresponsible spending, we just have to do what we need to to pay it off.
I’m in college and it’s unbelievable how few students actually understand the kind of debt they’re getting themselves into.
It’s one thing to invest in something for your future understanding the risks.
It’s another thing completely to throw caution to the wind and borrow tens of thousands of dollars. Some of these people don’t even understand compound interest. It’s crazy that people are even willing to loan them that money.
Kay, that’s definitely part of the problem. Admittedly, I didn’t realize just how much debt I’d graduate with, and I tried to be conscious about the cost of tuition the entire way (went to community college and then a college down the road from my parents, instead of somewhere that cost $30k a semester). I really wish more emphasis was placed on financial education in high school, even if it’s just on student loans!
Speaking of library overdue fees – I still owe them about $8.00, but there is no interest and I can continue to check things out as long as it’s below $10.00. I fully intend to pay it all back . . . after the credit cards.
We have the student loans and quite a bit of consumer debt, but we’re “hustling it away” as fast as possible. At least we don’t have to worry about car loans or medical bills. These numbers actually make me feel better about our situation, in that we’re not the only people who made financial mistakes along the way.
I quickly had a little search for debt in the UK (where I am) and it says the average household here is in £2,381 credit card debt. The average debt including mortgages is £54,597. They are predicting this to double in 5 years – eek!!
I was glad to see someone else taking America’s debt so seriously, Erin. I think too many people still think it’s no big deal. If America doesn’t get its debt under control soon (both government debt and personal debt) we could find ourselves in huge trouble as a nation.
These are all crazy, crazy numbers and it goes to show how ingrained debt is, in USA. I’m sure Australians have lots of debt too, but nowhere near as much.
For us personally, we have no debt at all. I wish we could keep it like that forever. We will never have credit card debt (we don’t have a credit card), no car debt (we paid in cash), no student debt (hooray public education) and we currently rent.
Tristan