Five Charts about the Debt Owed by American Families

[talltexan]

http://www.slate.com/articles/business/the_united_states_of_debt/2016/05/the_rise_of_household_debt_in_the_u_s_in_five_charts.html

My first reaction: interest rates are low! Of course people borrow more.

[andy85]

"5. The average household that has credit card debt owes $16,000. That number is $27,000 for auto loans, $48,000 for student loans, and $169,000 for mortgages"
man...that just hurts.

also, interesting trend in auto loans and student loans since the bailouts (chart 3)

[CheapskateWife]

"The average household that has credit card debt owes $16,000."

I find this interesting...what do they consider credit card debt?  If I pay off my cc every month but still have statements that reflect a balance because of the timing, is my much lower balance rolled into that 16,000 average? Including households like mine reduces the average?

Or do they leave folks like us out of the average because we don't carry the debt into the following statement?

[MrMoogle]

"The average household that has credit card debt owes $16,000."

I find this interesting...what do they consider credit card debt?  If I pay off my cc every month but still have statements that reflect a balance because of the timing, is my much lower balance rolled into that 16,000 average? Including households like mine reduces the average?

Or do they leave folks like us out of the average because we don't carry the debt into the following statement?

I don't consider this debt, whether they did or not, I'm not sure.

[talltexan]

I'm less worried about the debt than I am about the interest on the debt. If you pay your CC off every month, a balance of $1,700 could mean NO INTEREST.

An extreme case, where you finance five months' credit expenses ($8,500) could mean only paying $250 in interest expenses for transferring the balance each year, effectively the same rate as a mortgage.

[Tyson]

If we group homes and student loans into "investments" and credit cards and car loans into "spendypants", people aren't increasing their spendypants behavior, they are mainly investing in assets (home) and career (student loans). 

[shotgunwilly]

"The average household that has credit card debt owes $16,000."

I find this interesting...what do they consider credit card debt?  If I pay off my cc every month but still have statements that reflect a balance because of the timing, is my much lower balance rolled into that 16,000 average? Including households like mine reduces the average?

Or do they leave folks like us out of the average because we don't carry the debt into the following statement?

Well technically, if their metric is "average household that HAS credit card debt", then if they included those families statements that have a balance but get paid off every month... then those would actually lower the average. (edit: Assuming that most people dont put over $16,000 a month on credit cards and pay it off.)

If they already included ALL families (whether they had credit card debt or not) in their averaging, then the opposite would be true.

[galliver]

I'm less worried about the debt than I am about the interest on the debt. If you pay your CC off every month, a balance of $1,700 could mean NO INTEREST.

An extreme case, where you finance five months' credit expenses ($8,500) could mean only paying $250 in interest expenses for transferring the balance each year, effectively the same rate as a mortgage.

This suggests interest payments on credit card debt average $2630/year, but it looks like they assume an interest rate and apply it to the average debt; doesn't really clarify how much of that is a carried balance on an interest-charging card, vs balance on 0% card or if they are counting balances paid off in full monthly. Apparently total average interest payments are $6.6k (I believe that was actually asked/measured).

https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/

[Jesstache]

Hehe... we have no credit card debt (except our paid in full each month cc, of course) and one student loan, sitting just under $10k that we don't pay off since it's sitting at 2.375%.  Mortgage debt is another thing... Our primary residence is $133k... but then we have an additional $400k in investment properties (being paid for by our wonderful tenants).  I wonder how investment property debt is counted?

[maizefolk]

Well technically, if their metric is "average household that HAS credit card debt", then if they included those families statements that have a balance but get paid off every month... then those would actually lower the average. (edit: Assuming that most people dont put over $16,000 a month on credit cards and pay it off.)

If they already included ALL families (whether they had credit card debt or not) in their averaging, then the opposite would be true.

BINGO

If we correct for the total number of households, not just the number of households that have that particular kind of debt, this is what the numbers look like:

Average credit card debt across ALL american households: $5,770
Average mortgage debt across ALL american households: $61,600
Average auto loan debt across ALL american households: $7,910
Average student loan debt across ALL american households: $9,180

Source: https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ plus the fact that there are 134 million total households in the USA.

[SeaEhm]

$16k credit card debt?  Yikes...

Even if you take one of your "closer" colleagues at work, they may be on the other side of the average with a majority of colleagues being less.  Crazy to think there are people walking around with a car loan amount on a credit card at >20% interest.

[slugline]

What really stood out to me was the chart that shows the UK with high household debt relative to GDP -- more than double that of the U.S. and way more than any other country on the chart. What's happening there?

[talltexan]

Indeed that UK number is kinda ridiculous. No idea what's going on there!

[elysianfields]

What really stood out to me was the chart that shows the UK with high household debt relative to GDP -- more than double that of the U.S. and way more than any other country on the chart. What's happening there?

Real estate in the UK is outrageously expensive, except for the London metropolitan area, where it's bat-shit crazy expensive.  This leads to high mortgage balances.

[andy85]

Couple of observations:

1. Comparing household debt to GDP doesn't make sense to me. Wouldn't it make more sense to compare debt payments against household income? That measures "the burden of debt" more accurately, in my mind...

2. Why is auto loan debt increasing!? That is an alarming trend because I feel it represents consumers making poor long-term financial decisions. In my experience, cars are getting cheaper and more reliable, so auto loan debt should (in an ideal world) be decreasing.

And I don't even know what to say about this line from the article...

While we needlessly fret about overconsumption and hyperconsumerism, we miss a bigger picture: rising housing, medical, and education costs

That's pretty much the whole point of this forum ;)

im guessing the increase in auto loans is due to programs like cash for clunkers after the bailouts to stimulate car buying. Then the consumer feels the need to constantly upgrade every 5 years and its just complete hedonistic adaptation.

[maizefolk]

With auto debt, I think the lengthening of the repayment periods might be a big part of the issue. A lot more 7+ year car loans are being issued these days, which means people owe more on the same car for longer.

[HPstache]

With auto debt, I think the lengthening of the repayment periods might be a big part of the issue. A lot more 7+ year car loans are being issued these days, which means people owe more on the same car for longer.

I was going to say the same thing.  People are so focused on "what will my monthly payment be?!" Well, if you pay for only 7 years it will only be $400... Where do I sign up?!

[Allen]

Well technically, if their metric is "average household that HAS credit card debt", then if they included those families statements that have a balance but get paid off every month... then those would actually lower the average. (edit: Assuming that most people dont put over $16,000 a month on credit cards and pay it off.)

If they already included ALL families (whether they had credit card debt or not) in their averaging, then the opposite would be true.

BINGO

If we correct for the total number of households, not just the number of households that have that particular kind of debt, this is what the numbers look like:

Average credit card debt across ALL american households: $5,770
Average mortgage debt across ALL american households: $61,600
Average auto loan debt across ALL american households: $7,910
Average student loan debt across ALL american households: $9,180

Source: https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ plus the fact that there are 134 million total households in the USA.

So if I add all those numbers I get $85,090.  Population of US is like 330 million right?  Lets say that is 200 million households?  $85090 x 200,000,000 = 17 trillion. 
Is my back of napkin math and estimates good?

[maizefolk]

No errors in the math, but the final number is a bit of an over-estimate. I back calculated from total debt based on only 134 million households in the USA, so the total debt numbers I started with add up to "only" $12 trillion.

[talltexan]

I'm not disputing the calculations, but I think working from these kind of averages mis-characterizes the problem. If 20%-40% of households are at zero in each of these categories, then the averages don't really describe the experience of very many people, right?

[TrMama]

What really stood out to me was the chart that shows the UK with high household debt relative to GDP -- more than double that of the U.S. and way more than any other country on the chart. What's happening there?

Real estate in the UK is outrageously expensive, except for the London metropolitan area, where it's bat-shit crazy expensive.  This leads to high mortgage balances.

I suspect high RE prices, and therefore high mortgage balances are true for many places outside the US. As a Canadian living in a higher cost market, I think the average US mortgage balance is shockingly low. I'll be thrilled when our own mortgage is only $61K.

[Cassie]

I don't know anyone with that much CC debt. That is huge.

[talltexan]

Cassie-it may be that your friends with that much CC debt are keeping the fact hidden from you because they know how strongly you can facepunch them?

[Cassie]

Most people I know carry none or very little for a short time to do a special project.  One couple got an inheritance and paid off their home and bought a used RV.  But all my friends are between 50-70 so know they will need to retire someday or are retired. 

[nereo]

This would be a great example on how to use statistics to misrepresent an article.

1) this should correctly be called "Household debt to GDP has been falling". 
Of course it is higher than the historical average - that's because it went up so damn high from 2003-2008.  The present is dependent on the past. What is important is the trend, and it's going down.  In fact, it's the first multi-year drop we've seen in over 70 years.

2) This graph doesn't take into account the population increase.

3) CC and "other" debt has fallen slightly.  Yay!  Auto-loan debt has jumped (boo) but part of this is the effect of people delaying car purchases.  SL debt is the only surprising shocking thing here, and even in this data there-be-dragons. A large fraction of this debt is from people who did not finish their degrees and from for-profit organizations. Also, a lot was from people who went back to school during the great-recession to 'retrain' for a new career.  Many of those people have just re-entered the workforce in the last 2-3 years.

4) I'm honestly not sure what argument this graph is supposed to make, other than citizens of several other nations have more debt, and the US roughly in the middle of the pack, but with super-low interest rates and a much stronger economy than Italy or France.

5) This is the average for people that have this kind of debt.  It ignores all the people who do not have any debt ("data zeros") and says nothing about the interest rates, whether the debt is in deferement (e.g. SL) or whether the debt is being serviced on time.

[Dicey]

Well technically, if their metric is "average household that HAS credit card debt", then if they included those families statements that have a balance but get paid off every month... then those would actually lower the average. (edit: Assuming that most people dont put over $16,000 a month on credit cards and pay it off.)

If they already included ALL families (whether they had credit card debt or not) in their averaging, then the opposite would be true.

BINGO

If we correct for the total number of households, not just the number of households that have that particular kind of debt, this is what the numbers look like:

Average credit card debt across ALL american households: $5,770
Average mortgage debt across ALL american households: $61,600
Average auto loan debt across ALL american households: $7,910
Average student loan debt across ALL american households: $9,180

Source: https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ plus the fact that there are 134 million total households in the USA.

Maizeman, thank you for this! It's a breath of fresh air when someone understands the difference between households that have debt and those that don't.

[mpg350]

I don't know anyone with that much CC debt. That is huge.

Listen to Dave Ramsey long enough and you hear people calling in with CC debt this high and higher...I think plenty of
people are like this they just don't announce it.

[Allen]

For years while I was an idiot I had credit card debt up to $29,000.
Hundreds a month in interest and just servicing the payments.

It's amazing how fast I've been able to save once I stopped being an idiot, paid this off, and started moving in the other direction.  It has coincided with massive increases in salary as well (I guess not being an idiot also earns you more money - or at least not being stressed about money has given me the confidence and breathing space to be a tougher negotiator)

[nobodyspecial]

What really stood out to me was the chart that shows the UK with high household debt relative to GDP -- more than double that of the U.S. and way more than any other country on the chart. What's happening there?

Real estate in the UK is outrageously expensive, except for the London metropolitan area, where it's bat-shit crazy expensive.  This leads to high mortgage balances.

I suspect high RE prices, and therefore high mortgage balances are true for many places outside the US. As a Canadian living in a higher cost market, I think the average US mortgage balance is shockingly low. I'll be thrilled when our own mortgage is only $61K.

US GDP/capita is also very high (partly because of the $ as world currency) compared to other developed economies.