2015 American Household Credit Card Debt Study

Debt is an unwelcome guest at the table in many American households. The average U.S. household with debt carries $15,549 in credit card debt and $136,197 in total debt.

It’s easy to say we should simply pay off our balances and free ourselves of the burdens — financial and emotional — that come with financing many aspects of our lives. But it’s not that simple.

When BW dug into the “why” and the psychology behind debt, as well as its cost, it became clear that increasing debt loads aren’t just a result of irresponsible spending. There are many factors at play in the increasing amount of debt being carried in homes across the country.

But there is hope. Americans can rid themselves of heavy debt and its financial toll.

Before we begin eradicating debt, it’s important to know how much we’re working with. Here’s what the typical household is carrying, as well as total consumer debt in the U.S.:

But not all debt is equal. Under the right circumstances, mortgage, student and auto loan debt can help strengthen your financial position. However, credit card debt — and other debt with high interest rates — tends to be unnecessarily costly and should be paid off as soon as possible.

BW analyzed data from several sources, including the New York Federal Reserve and the U.S. Census Bureau, then commissioned an online survey, conducted by Harris Poll, of more than 2,000 adults (see methodology below) to determine why Americans have so much debt. As part of BW’s mission to deliver clarity for all of life’s financial decisions, we’ve scrutinized the results and provided tips for consumers to make room in their budgets, understand their debt and pay down their balances to avoid interest charges.

• Why debt has grown:
  
  The rise in the cost of living has outpaced income growth over the past 12 years.
  
  While median household income has grown 26% since 2003, household expenses have outpaced it significantly — with medical costs growing by 51% and food and beverage prices increasing by 37% in that same span. [1]

• The psychology of debt: Consumers vastly underestimate or underreport how much debt they have. In fact, as of 2013,
  
  actual
  
  lender-reported credit card debt
  
  was 155% greater than borrower-reported balances. [2]
  

• The cost of debt:
  
  The average household is paying a total of $6,658 in interest per year. [3]
  
  This is 9% of the average household income ($75,591) [4] being spent on interest alone.

In this report, we’ll discuss the “why” behind rising debt loads, potential reasons why consumer- and lender-reported debt amounts — particularly
credit card
balances — are so different, and how much debt is costing consumers in interest.

“I’ve been there — credit card, student, personal and automobile debt,” says Sean McQuay, BW’s resident credit card expert and a former strategy analyst at Visa. “With tight budgeting, I’ve managed to pay off my credit card debt, but, like many Americans, I still carry other debt balances. But I’m working on it. Understanding debt and its underlying causes is key to our future victories over debt.”

Household income has grown by 26% in the past 12 years, but the cost of living has gone up 29% in that time period. And some of the largest expenses for consumers — like medical care, food and housing — have significantly outpaced income growth.

It would be easy to say consumers are spending irresponsibly, leaving the recession (and their budgets) in the dust. But it’s not quite that simple.

Only three of the major spending categories haven’t outpaced income growth: apparel, recreation and transportation. But apparel and recreation are relatively immaterial expenses; they don’t make up a large portion of the typical consumer budget. [5]

The total cost of living has increased by 29% since 2003, whereas income has grown only 26% in that time. “While 3% doesn’t seem like a significant difference, this gap becomes much more significant for Americans that have acute or chronic health problems, or live in a city with a high cost of living, or are attending college. It makes perfect sense, then, that debt has increased during this time. The cost of living has simply outpaced income,” McQuay says.

After adjusting for inflation, household debt has grown 15% faster than household income since 2003. This is a concerning spread, but it has improved significantly from where it was in 2009, during the recession, when the difference was a whopping 42%. [6]

“One upside to the recession is that it forced people to tighten their belts,” McQuay says.

Households earning over $157,479 paid $5,120 in annual interest on credit cards and $19,506 across all debt types. Those earning less than $21,432 had $7,662 in credit card debt and $38,871 in total debt. For households earning between $112,262 and $157,479, the credit card debt was $21,296, and the total debt was $208,217.

According to Trading Economics, the United States’ debt to GDP ratio was 101.17% as of December 2014.

The U.S. Department of Agriculture estimated that parents would spend $245,340 to raise a child born in 2013 from birth to age 18.

Using consumer-reported data from the Survey of Consumer Finances, we found that single people with children paid $3,648 in annual interest on all debt types, while single people without kids paid $4,009 (under 55) and $3,924 (55 and older) annually. Couples with children paid $9,539 in annual interest on all debts, while couples without children paid $6,678.

Single parents paid $5,084 annually on mortgages, $2,477 on credit cards, $1,798 on student loans, and $1,026 on vehicles. Single individuals under 55 without children paid $5,973 on mortgages, $2,094 on credit cards, $2,866 on student loans, and $1,400 on vehicles.

Households led by self-employed individuals paid $10,430 annually on mortgages, $3,320 on credit cards, $2,461 on student loans, and $2,220 on vehicles. Households led by employees paid $7,155 on mortgages, $2,465 on credit cards, $2,708 on student loans, and $1,677 on vehicles.