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A Study of Credit Card Debt for American Households

The majority of American households are saddled with debt. According to figures gathered together in 2015, American families owe an average of $15,675 on credit card debt and as much as $132,158 in overall debt.

How can Americans reduce their sometimes-crippling debt load? The easy answer is to simply pay off your debt and become emotionally and financially unburdened. But – as with many seemingly “easy” answers – it’s not that simple. 

NerdWallet wanted to find out why American households are so encumbered with debt. Does the problem simply come down to irresponsibility when it comes to spending? Or does the problem run deeper than that? As it turns out, there are multiple factors in play – both psychological and financial.

But there is light at the end of the tunnel. While it may not be as simple as some people assume, it is certainly possible for American households to reduce their debt levels. 

Before we can start discussing ways to reduce debt, it’s important to understand the figures we’re working with. The following table shows the average debt levels of American families across various debt types, along with the total amount of American consumer debt. Note that these figures are updated every quarter, and this table shows the state of play as at Q2, 2016.

 The Total Owed By The Average American Household That Carries This Debt TypeThe Total Amount Of This Type Of Debt Owed By Americans
Credit Card Debt$15,675$729 billion
Mortgage Debt$172,341$8.36 trillion
Car Loans$27,865$1.1 trillion
Student Debt$48,591$1.26 trillion
Total Debt$132,158$12.29 trillion

However, you can’t treat all debt the same way. Under similar circumstances, car loan debts, student loans, and even mortgages can assist you to create a stronger financial status. Unfortunately, the same cannot be said for credit card debts, along with other debts with relatively high-interest rates. These types of loans are needlessly expensive and are best repaid as quickly as possible.

NerdWallet is committed to helping Americans to have clarity and peace of mind when it comes to their financial decisions. As part of this aim, NerdWallet wanted to find out why American households have so much debt. To find out, they consulted a range of data including the United States Census Bureau and the Federal Reserve in New York. 

They also commissioned Harris Poll to create an online survey of more than 2,000 American adults. The various data were compiled and analyzed to create a series of tips to assist American households to understand their debt levels, reduce their interest charges by paying down their debts, and free up some room in their budgets.

Important Findings From The Study

The Reasons For Debt Growth

While income levels have grown over the last twelve years, the cost of living has skyrocketed. Medical costs in particular have increased 51 percent over the past twelve years, while the cost of food and beverages has increased 37 percent. In the same time period, medium-income levels rose 26 percent – hardly keeping pace with increased expenses.

Understanding Debt Psychology

There is a growing trend for consumers to underreport their overall debt levels by significant amounts, potentially due to the psychological ramifications of admitting to high debt levels. In fact, figures released in 2013 show credit card debt levels reported by credit lenders as being 155 percent higher than what was directly reported by consumers.

The Hidden Costs Of Debt

The average American household income is $75,591, and the average total interest payments per household comes in at $6,658. This means that American households are spending 9 percent of their income solely on interest repayments – without even touching the principal of their loans.

Before consumers can take action to reduce their debt, they must first understand why debt levels are so high, the real costs of debt repayments, and why the reported debt levels from lenders and consumers differ so vastly. 

Sean McQuay, a former Visa strategy analyst now working at NerdWallet as an expert on credit card debt, says that understanding the underlying causes of debt is critical for consumers to have any chance of overcoming their rising debt levels. McQuay is no stranger to debt himself, with a history of car loans, personal debt, student loans, and credit card debts. While he was able to significantly reduce his credit card debt through careful budgeting, McQuay is still encumbered with other types of debt – just like the American consumers he is seeking to help.

As The Cost Of Living For Everyday Americans Increases, Debt Soars

In the past 12 years, we’ve seen household income increase by 26%; however, in that same period of time, the cost of living has increased by 29%. Some of the larger expense items for consumers, like housing, food, and medical care, have dramatically overtaken income growth.

When income growth is overtaken by the cost of living, debt increases. But it’s not as simple as saying consumers are spending carelessly.

The Cost of Living Compared to Nominal Income

There are only three main spending categories that have not been overtaken by income growth, and these are transportation, recreation, and apparel. However, recreation and apparel are fairly inconsequential expenses; neither of these is a large part of the typical consumer budget.

Since 2003 there’s been an increase in the total cost of living by 29%, with income growing only 26%. This leaves a gap of 3%, which doesn’t sound very significant, but it is a very significant amount for Americans who are attending college, who live in a city with a high cost of living, or those who have chronic or acute health problems. Now we can see why debt has increased during this period of time – income has been outpaced by the cost of living.

Household Debt Compared to Real Household Income

Subsequent to making inflation adjustments, we’ve seen household debt grow faster than household income since 2003. While this is very concerning, this figure is a huge improvement from where it sat during the recession in 2009 where the difference was a massive 42%. People were forced to ‘tighten their belts’ during the recession which, while painful at the time, certainly helped slow the growth of consumer debt.

Dealing With The Problem

A simple but crucial step is to cut expenses. It’s imperative that you know exactly how much you make and what you’re spending your money on. Next, determine which expenses can be reduced (or eliminated). You then need to create an automatic savings plan and act as if this money doesn’t exist.

Be very firm with yourself and ask if that cable subscription is really necessary while you also have Netflix. Is your landline phone still necessary? What about the car in your garage that you rarely drive? There are some basic steps that consumers of all income levels can take to improve their wealth, which may just mean paying their credit card balances off much quicker.

It’s also important that you be kind to yourself when you’re struggling to stay above water – the gap between your income and outgoing expenses has become a real problem for many people. If you’re concerned about being underpaid for your work, check out NerdWallet’s salary negotiation guide. The next step is to learn how to make more and spend less. This will teach you how to free up money to put less stress on your budget, or to put money towards your debt. 

The Trend of Underreporting True Debt Levels May Indicate That Consumers Are Ashamed of Their Credit Card Balances

There is an unusual trend emerging from this data – the tendency for lenders and consumers to report noticeably different credit card debt levels. The discrepancy is not minor. In 2013, the difference between the reported amounts rose as high as $415 billion. The most likely cause of this enormous discrepancy is the potential tendency for Americans to underreport their credit card debt by as much as half. While some of this underreporting may be accidental, it is likely that this tendency is at least partly due to the stigma surrounding high levels of credit card debt.

The Likelihood That Consumers Are Unaware Of Their Real Debt Levels 

Why, then, are consumers so likely to underreport their levels of debt – especially credit card debt? For some people, it comes down to genuine ignorance as to their actual debt levels. The survey data revealed that almost one-quarter of all respondents were shocked or surprised when receiving a credit card statement. This tendency suggests that – for some people at least – having a real understanding of their spending habits is a struggle.

There is also the possibility that some people choose to not report credit card balances that they are actively paying off, or planning to pay off. However, 13 percent of respondents said they forget to pay their credit card repayments at least sometimes. This suggests that people may choose to not report credit card debts that they’re paying off, but these repayments may not be happening as reliably as the consumers believe.

Another possibility is that some people choose to not report credit card debt they don’t believe comes under the umbrella of personal finance. For example, an individual who maintains a separate credit card to cover small-business expenses may not report this balance because they consider it a business expense rather than a personal one. From the lender’s point of view, the purpose of the credit card likely wouldn’t be known, so they would not distinguish between their different cards when reporting total account balances.

Perhaps less likely is the possibility that data was collected from lenders and consumers at different times, and that lenders reported their data when lending amounts were high, while consumers reported when lending amounts were lower.

The discrepancy between the figures reported by the two sectors is so significant that is simply cannot be disregarded as a statistical error or an unintentional mistake.

The Tendency For Lenders To Over-Inflate The Amount Of Consumer Debt

It is illegal for lenders to overreport their levels of consumer debt. However, there are still fairly significant motivating factors for lenders to do just that. Funds owed to a lender by consumers – known as accounts receivable – are an asset on the lender’s balance sheet. A company’s value is calculated as its asset balance minus its liabilities. If a lender was interested in increasing the value of their company – when trying to sell their company for a higher amount, for example – there would be a significant incentive to overreport their consumer debt levels.

That would be a rather risky move, though, and it’s probably not what’s driving the difference. Consumers have the opportunity and incentive to underreport their balances. The incentive is there for lenders to inflate consumer debts, but strict reporting standards ensure there’s little opportunity to do so, and why would they take the risk?

Consumer Embarrassment About Growing Debt Is A Real Factor

Because of the negative connotations around debt, it’s quite likely that consumers intentionally underreport their credit card balances. A recent survey revealed that 70% of Americans say that credit card debt carries more stigma than any other form of debt, and this could explain why mortgages and other forms of debt are more accurately reported.

It’s true that many Americans are embarrassed by their credit card balances. Around 35% of people surveyed said they were embarrassed by their credit card debt, stating they would rather reveal other forms of debt, like student loans and medical debt, than their credit card debt. Younger people and students had much stronger negative feelings than other people surveyed.

Also revealed in this survey was that the stigma doesn’t apply equally to everyone. Interestingly, one out of every four Americans would judge a family member or friend for having credit card debt; but more alarmingly, almost half would not be interested in dating someone who had a negative balance.

This shows that the stigma is very real, and it can be counterproductive and damaging. Our message to any American in debt is that you are not alone. Do your research to discover how other people overcame debt – but don’t ignore your debt. Acknowledge it, come to terms with it, then find a way to climb out of it.

Dealing With The Problem

Being aware of the problem is the first step. Work out how much credit card debt you have, then create a workable plan to eliminate it. If you’re ashamed of this debt, understand that these feelings won’t make your debt go away. You have to establish a concrete plan, and stick to it.

If you’re not entirely sure where you have open accounts, go to and retrieve your credit reports. You’re entitled to receive one free report per year from each credit reporting bureau. Note that your account balances may be different from the balances on your reports, depending on when the reports are issued. Knowing the total amount of your debt leaves you free to create a plan to reduce, then hopefully eliminate, it.

Rising Debt Carries A High Cost

In America, an average household carrying debt pays $6,658 per year in interest. This means that 9% of a typical household income of $75,591 is gobbled up just on interest. As of 2013, this is accrued interest on a total average debt of $125,963. This figure makes up $167% of an average household income.

Consumer Credit Card Interest Is Averaging Over $2,500 Annually

When you understand debt and use it wisely, it can certainly be a smart financial move. It allows most people to purchase a home without the need to save the full cost upfront. However, all debt comes at a cost. The average person in America who’s carrying any type of debt is paying $6,658 each year in interest payments. One of the more expensive types of debt, credit card debt, costs around $2,630 per consumer, per year, in interest. This is assuming an average of 18% APR.

With Rising Incomes Come Rising Cost Of Debt

History tells us that debt problems are not solved when people make more money. In fact, our findings reveal that when income increases so too does the debt load. This results in larger annual interest payments. People with higher incomes have easier access to higher credit limits, giving them the freedom to rack up higher balances. On the other hand, low-income earners have limited access to credit.

There is a striking difference here: Households earning more than $157,479 each year are spending around $4,000 more in credit card interest than a household that earns less than $21,432, plus they’re spending more than $17,000 in interest across debt types.

To see the full picture it’s very important that we look at debt relative to income. To do this we’ll compare the average debt owed by a person who earns $20,000 per year with another person who earns $150,000 per year. The first person owes $38,871, while the second person owes $208,217. What do these figures tell us? They tell us that the first person on a lower income owes 194% of their income in debt, while the second person on a higher income owes $139% of their income in total debt. Interestingly, the United States owes approximately 101% of its national income.

The same pattern can be seen with credit card debt. The person on a lower income has credit card debt of $7,662, which is 38% of their annual income, while the person on a higher income has credit card debt of $21,296, which is 14% of their income. While the person with the higher income has a much higher debt number, they owe a much smaller percentage of their annual income. So yes, while higher-income households do spend more, it doesn’t affect their bottom line as much.

How Children Contribute To Your Household Debt

According to statistics, the cost of raising a child from birth to age 18 amounts to almost a quarter of a million dollars – this doesn’t include costs associated with college. So the question arises: Does having children equal more debt? The data reveals that your relationship status does have an effect.

A single person with children pays, on average, $3,648 in interest payments per year; this figure is less than single childless people of all ages. However, a couple with children pays, on average, $9,539 in interest payments per year; this figure is more than couples without children.

It seems that single-income earners have limited borrowing ability, which sounds unfair when it’s these people who probably need it more, but the fact is that banks are very cautious about lending money to people on lower incomes. 

A single parent is likely to spend less on student loans, auto debt, and a mortgage, than their childless counterpart, but they typically carry more credit card debt. As we know, credit card debt is probably the most expensive debt carried by a household, so regardless of whether you have children or not, it’s important that this debt be paid off as soon as possible.

The Real Costs Of Being Self-Employed

While being self-employed can be a gratifying work status, it can also mean carrying more debt than your employees. Statistics reveal that a ‘self-employed’ household spends $11,545 per year in interest, while an ‘employee’ household only pays $6,925 to finance their yearly debt. Figures show that, with the exception of student loans, self-employed people pay more interest in every considered category.

Dealing With The Problem

The only way to reduce the costs of debt is to reduce your consumer debt. That doesn’t mean you must give up your dream of having a child or of entrepreneurship just to save money on interest. Just be fully aware of how much debt you’re carrying and its associated costs. Then start working on paying down credit card balances and any other high-interest debt.

If you’re ready to start now, have a look at NerdWallet’s getting out of credit card debt hub. If you’re like many consumers who are spending $2,630 or more per year on credit card interest, we know you can find many better uses for that money. Here are a few ideas.

Consider other options for reducing your interest rate while simultaneously paying down debt. Check out debt consolidation loans for consolidating your credit card debt, or look into personal loans. You might choose to refinance your student loans. Also, ensure you’re getting the best deal on your home loan by comparing mortgage rates.

Credit Card Debt Levels Each Year

Year Average Household Credit Card DebtAverage Household Credit Card Debt For Households That Have Credit Cards
2002 $6,294.77$14,185.12
2003 $6,272.58$13,854.57
2004 $6,401.79$13,864.78
2005 $6,493.56$14,074.98
2006 $6,705.48$14,546.15
2007 $7,232.07$15,701.25
2008 $7,415.46$16,911.82
2009 $6,784.38$16,294.85
2010 $6,207.35$15,745.75
2011 $5,870.24$15,053.44
2012 $5,607.68$14,539.11
2013 $5,577.38$14,622.21
2014 $5,680.48$15,054.54
2015 $5,883.44$15,762.07

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