Debt is a fact of life for most Americans. Whether you carry student loans, credit card debt, or mortgage debt from your home purchase, most Americans are burdened with debt.
According to data from the Federal Reserve Bank of New York, the total amount of debt held by American households surpassed $16 trillion in the second quarter of 2022. Auto loans rose by $33 billion during this period, while mortgage debt increased by $207 billion. In other words, the debt problem in American households is growing immensely.
So, how much debt does the typical American have? In this post, I will share some of the numbers behind the average debt load of Americans.
Overview of the average debt of Americans
It is important to note that not all debt is created equal. Certain kinds of debt, such as mortgages or student loans, are oftentimes considered to be more of an investment than a pure burden. Other kinds of debt, such as carrying a balance on credit cards, are usually viewed more negatively.
At the end of the day, most people carry a mixture of debt that is unique to them. Things like interest rates, APRs, length of the loan, etc. can all influence the impact of the debt load on your personal financial situation.
Here is an overview of different types of debt carried by Americans, using the latest average data from the 2021 Experian’s Consumer Credit Review.
|Type of debt||Average debt in 2021|
|Car loan||$20, 987|
|Student loan||$39, 487|
|Credit card||$5, 221|
Average Debt of Americans: Mortgages
When it comes to the amount of debt the typical American has, mortgages constitute the biggest outstanding debt in the U.S. Currently, the average mortgage debt stands at $220,380. With most mortgages often lasting between 10 and 30 years, this is no surprise!
Throughout 2022, interest rates have risen. This may impact mortgage balances in the coming years.
How to pay off mortgage debt
One option for tackling mortgage debt is refinancing your loans. When you first purchase your home, you are likely locked in a fixed interest rate for the life of that mortgage. As the economic situation changes, there may be better interest rates available.
Refinancing can allow you to take advantage of newer rates and potentially save you thousands of dollars over the years. Shopping around and comparing your current interest rate to other options may be a good idea.
Average Debt of Americans: Student Loans
Every year, student loans assist millions of Americans in financing their higher education. The average balance for this kind of debt in 2021 was $39,487. The interest rate pause on student loans is slated to end on December 31, 2022, which is likely to have an impact on debt averages.
How to Pay Off Student Loan Debt
Paying off student loan debt really depends on the type of loans you have. Typically, private loans have a higher interest rate than federal loans. Private loans tend to have higher interest rates, so you may look into debt consolidation for these or paying them off earlier.
For federal loans, you can utilize the debt avalanche or debt snowball methods to pay them early (more info below!). Typically, income-based repayment extends how long you will need to repay the loans. For these, it is best to stick to your typical repayment schedule or shoot for an early payoff instead.
Average Debt of Americans: Car loans
Most car buyers do not have the means to pay for a car outright, so they take out a car loan and pay it off over time. Two-thirds of American adults have at least one car loan, making it the second most popular form of debt. According to Experian, the average car loan debt in the U.S. is $20,987, up 6.7% from 2020.
How to Pay Off Car Loans
Before paying off your car loan, you will want to see if your lender will charge a prepayment penalty. You will also want to ask what the lump sum total will be to pay off the loan. Make sure you account for the remaining loan amount, interest, and any hidden fees.
If you are struggling to make the minimum payments, you may even consider selling the car instead. This way you can pay the remaining balance and allocate any savings towards a more affordable car.
Average Debt of Americans: Credit cards
According to Experian, the average credit card debt the typical American had as of the third quarter of 2021 is $5,221.
While this is a significant amount, it represents a 1.8% decrease from 2020. That means the average credit card debt for Americans is far lower than it was before the COVID-19 pandemic! This a good sign, given that most other forms of debt have increased within the same time span.
How to Pay Off Credit Card debt
Before paying off your credit card debt, you will want to first build a small emergency fund. This can keep you from immediately slipping further into debt should unexpected expenses occur.
From there, simply follow conventional financial advice. Start budgeting, increase your income, and pay things down as quickly as possible! In extreme cases, you may even consider filing for bankruptcy to get a financial restart.
One thing that I did to reduce my credit card debt asked for all of my due dates to be moved to a few days after payday. That way, I knew I would always have the minimum payment ready and could pay extra before I accidentally spent it.
Understanding consumer debt
Consumer debt is personal debts incurred from buying goods used for household or individual consumption. Auto loans, payday loans, and credit card debt are all examples of consumer debt. These differ from other debts that are used for investments.
Consumer debt is regarded as a financially unsatisfactory method of financing (sometimes called “bad debt”). That is because the interest rates on consumer debts, like credit cards, can be very high. Moreover, the items purchased do not typically appreciate in value!
On the other hand, debts involving student loans and mortgages are usually considered “good debt”. For example, when you purchase a home through a mortgage, the value of that home will appreciate over time. For student loans, you benefit from a college education, which typically improves your lifetime earning potential.
How to get out of debt
There is no one-fit-all technique to get out of debt. However, below are a few proven suggestions to get you started.
You can use these tips to get out of any kind of debt. Be sure to check out the tips above if you are looking for help with specific kinds of debt! The more of these tips you can implement, the sooner you will manage your debt problem.
- Create a budget
Are you squandering money? There is a likelihood that you might be. Creating a budget can help you clear your debts faster.
To make a lasting impact on your finances, you will want to stay out of debt by changing your habits. Track your expenses for a few weeks or months, and then take a candid look at the situation. One by one, identify things you are wasting money on and do away with them.
- Increase your earnings
Once you have consolidated your debts and created a budget, it is time to look for multiple ways to increase your earnings to get you out of debt faster.
You can pick up a part-time job or start freelancing. That way you can put all of those extra earnings toward debt reduction! You will have to put in extra effort for a few months, but the impact on your debt balances will be significant.
- Participate in a debt pay-down challenge
Debt payment challenges are financial activities that encourage people to reduce their debt balances. The challenges are easy and fun to do. You simply set an amount and time limit based on the rules of the challenge in question. Having a time limit is what helps you achieve the goal faster. Below are a few debt pay-down challenges, you can try.
- 52 Weeks debt pay down challenge (save $10,000 annually)
- Save $1,000 in a month challenge
- Save $500 in a month challenge
- Debt elimination challenge
- The debt snowball challenge
- The debt avalanche challenge
- Utilize the Debt Snowball or Debt Avalanche methods
Two of the most prevalent debt-reduction methods are the debt avalanche and debt snowball. Both of these methods advocate tackling one debt at a time with every extra coin you earn.
The only difference between them is the manner you address the debt. When it comes to the snowball method, you begin by addressing the smallest balance. This provides a psychological boost and quick wins.
On the other hand, the debt avalanche method suggests starting with the highest-interest balance. However, regardless of the method, you take, the most important thing is to have a plan and stay on track.
- Find small ways to reward yourself
Your debt-repayment journey will likely take several months or years. The more active you are, the faster it will be; however, you must also be ready to reward yourself.
Your rewards, though, should be proportionate to your accomplishments. For example, making your first debt payment can be rewarded by spoiling yourself with a modest lunch or something similar.
You do not want to feel like you are punishing yourself during your debt-free journey. Budgeting too tightly can lead to financial “binges”, just like dieting! Instead, plan for small milestone celebrations to keep you motivated!
The bottom line on tackling debt
Americans are still recuperating financially from the COVID-19 pandemic. Inflation and increased interest rates are leading to a lot of economic uncertainties. But regardless of what happens, it is always advisable to keep your debts at manageable levels.
If you don’t already have a debt-reduction plan, it is high time to think of one. With so many free and cheap tools online, it is easier than ever before to get your finances in order. Congratulations on taking the first step in paying off your debt and don’t give up!
Do you have a favorite debt payoff method? What are your thoughts on the average debt of Americans? I’d love to hear from you in the comments section!
This is a guest post from Kathryn Rucker. She is a business consultant and personal finance blogger who is passionate about helping individuals and businesses scale by improving their online presence. Kat started traveling the world in 2019 and currently runs her blog and business out of Phnom Penh, Cambodia.