How Much Is The Average Credit Card Debt Per Household?

Average Credit Card Debt Per Household

How many times have you withdrawn a wad of cash only to see it disappear a few days later with little idea where it all went? By putting as much expenditure on my credit cards as possible I get a handy dandy pie chart and expense line breakdown at the end of every month to see where my money is going. Furthermore, I get all those juicy rewards points that really begin to rack up over time.

The average household owes $15,191 based on data from the Federal Reserve and Nerd Wallet, a credit card lead generator. They also throw out a $7,191 number for average credit card debt for “non-indebted households.” According to the Experian Intelliview tool, the average credit card balance per consumer was $3,779 in 1Q2013. However, consumers with low credit scores – like a “D” in the VantageScore range – had average credit card debt of $5,965. Finally, according to CreditCards.com the average credit card debt per U.S. adult, excluding zero-balance cards and store cards is $4,878. The average debt per credit card that usually carries a balance is $8,220. And the average debt per credit card that doesn’t usually carry a balance is $1,037 (must equal spend).

It’s hard to figure out what’s the right number because they seem way too high and all over the place given the median household income is around $51,000. One way to finding a better average credit card debt and spend number is to simply get more datapoints with a short four question survey below.

The impact on the amount of average revolving credit card debt per household is largely determined by income. You might have an astounding $15,000 in revolving credit card debt, but if you are making $1 million a year, who cares? The more pertinent measure is average revolving monthly credit card debt to average monthly gross income.

What’s confusing is that it’s unclear whether people who pay off their credit card bills every month are also included in the average credit card debt per household. After all, when I charge something on my card, I have interest free debt for 28-31 days, depending on the month, until I pay the bill off in full. The solution is to simply calculate the average credit card spend a month to the average monthly gross income, and calculate the average revolving credit card debt a month to the average monthly gross income to get a more thorough picture.

From Debtor To Millionaire: How A Windfall Changed My Life

This is a guest post from J.D. Roth, who founded the blog Get Rich Slowly in 2006 and is the author of Your Money: The Missing Manual. I first met JD four years ago for lunch up in Portland when I was still working. By that time, J.D. was already a mini-celebrity in the personal finance world through his story telling abilities and topical focus of paying down debt and living a more frugal lifestyle. We came from opposite ends of the financial and topical spectrum, but as fate would have it, we’re in pretty similar boats now.

I admire J.D. because he is a “blogging purist” – someone who writes for the love of writing first, community second, and income a distant third. Instead of an interview, I asked J.D. to share his story of how he went from debtor living paycheck-to-paycheck to financially free in just a few short years. His latest project is a year-long course on how to master your money, which explains how to slash costs, properly budget, and boost income so that you can pursue early retirement and other goals. Please enjoy this great post about struggle, loss, change, and love. 

In The Beginning

My parents

I’m a lucky man, and I know it. But for a long time, it sure didn’t seem that way.

When I was a boy, my family was poor. We lived in a single-wide trailer house in rural Oregon. My father was often out of work. When he was unemployed, things were rough. We never went hungry, but sometimes we came close. More than once, we were bailed out by the kindness of other families in our church.

We didn’t always struggle. Sometimes my parents had money, at least for a little while. You see, my father was a serial entrepreneur. He was always starting businesses. Even when he had a job selling boxes or staplers or candy bars, he had something going on the side. Most of his businesses failed, but some succeeded.

In 1977, my father sold one business for $300,000. He was supposed to receive $5000 per month for fifteen years, which seemed like a lot of money at the time. To celebrate, he went out and bought an airplane, a sailboat, and a Kenwood stereo. Life was good — until the buyer went bankrupt. Because he hadn’t saved anything from the few payments, Dad was broke again. And unemployed. We were right back where we’d started.

This “famine or feast” pattern continued throughout my entire childhood. Most of the time, it was famine — not feast.

In the late 1980s, I went away to college. Because I knew my parents couldn’t help me pay for school, I took care of things myself. I was a good student with a lot of extracurricular activities: president of the computer club, national competitor in Future Business Leaders of America, editor of the school literary magazine, and so on. Plus I had terrific scores on the the PSAT and SAT. As a result, I earned a full-ride scholarship. I worked two or three or five jobs to pay for housing and to earn spending money.

During college, I developed a spending habit. In order to keep up with my friends, many of whom seemed to be rich (as I defined it at the time), I used credit cards. I began to carry debt. At first, I only owed a few hundred dollars, but by the time I graduated with a psychology degree, I had a few thousand dollars in credit-card debt.

After college, my debts continued to mount. I bought a new car. When I had money, I spent it. When I didn’t have money, I still spent it. By the middle of 1995, just four years after I’d graduated, I’d accumulated over $20,000 in credit-card debt. It got worse. In 2004, my consumer debt topped $35,000. I felt like I was drowning. (See: How Many Credit Cards Should I Have Until It’s Too Many?)

The Best Strategies To Get Out Of Debt And Become Happier In The Process

Out of debt with not a care in the worldI graduated from business school in 2006 with roughly $55,000 in student loans. Although $55,000 is a lot to pay off, I was already a “debt veteran” by then. What’s another $55,000 in student loans when I was already leveraged over $1 million dollars to buy my first properties in 2003 and early 2005?

I didn’t need to take out student loans, but I decided to conduct some financial arbitrage. The maximum amount one could borrow through a Stafford Loan at the time was $18,500 a school year at an interest rate of 2.75%-4%. I took out the maximum amount at the beginning of each school year to pay for tuition while I received 100% tuition and books reimbursement at the end of each year from my company to reinvest in the markets. 2003-2006 was a time of recovery in the financial markets and I figured I could beat a 2.75%-4% annual return.

Even though the financial services industry was going through retrenchment during the time I attended business school, the S&P 500 was doing quite well (2003 +28%, 2004 +11%, 2005 +5%, 2006 +16%). Even long term CDs were yielding roughly 4% risk-free. The extra $18,500 invested in the stock markets each year did end up growing faster than the cost of debt until a year after I graduated.

I was feeling proud of myself for the financial arbitrage until the 2008-2009 massacre hit. Originally, I was planning to continue holding on to my 2.75% consolidated loans to reinvest in the market. But when the markets got rocked, the loans started feeling like a burden instead of a gift so I wrote a check and paid everything off instead. I was overly focused on making an extra $3,000-$10,000 a year on my arbitrage rather than focus on the big picture of my overall net worth. It feels better to have less debt during times of crisis, however in retrospect, it would been better to lever up even more to buy more stocks!

Debt is the opposite of generating passive income for financial independence. Debtors are helping make someone else’s financial goals a reality while digging themselves further down a dark hole. The only type of debt I like is primary mortgage debt given there’s a good chance the underlying property will appreciate in value over a long enough period and you’ve got to live somewhere. There’s never a financial return for renting. Furthermore, the tax benefits of mortgage debt under $1.1 million dollars is also a nice bonus to have.

In this article I’d like to provide a debt framework that will help you get motivated to get out of debt. But first let’s understand the why.

WHY WE GET INTO DEBT

The Reality Of How People Get Into Debt – It Just Creeps Up!

Clown From Movie IT I am an opponent of consumer debt because the interest rates that credit cards charge are usurious when compared to the government bond yield of ~2.8%. If you are going to use a credit card, please pay it off in full every month or you’re just lighting your money on fire. This ain’t Vegas where everybody is making it rain in the clubs you know!

We probably shouldn’t be living it up while still deep in consumer debt if we want to achieve financial freedom. But it’s just so hard when we’ve got our parents, government bailouts, rich friends, and wealthy spouses who will take care of us if we go overboard. Paying $4 an hour for parking with my credit card doesn’t feel so bad. But when I’ve got to load up the meter with 16 quarters, damn, what a ripoff! It’s only natural to want what other people with means have, so we spend since it’s so easy.

One of my readers called me out on my assumption that indebted consumers consciously spend beyond their means. Is it so bad for me to assume a mugger isn’t threatening to chop off your pinky if you don’t buy yourself $1,000 Christian Loubotin pumps or a $8,000 Panerai Submersible watch? I think so, but here’s a fantastic perspective by “GetAGrip” which I thoroughly appreciate.

DEBT CREEPS UP ON YOU LIKE A CLOWN IN THE GUTTER 

Should We Still Be Spending Money And Having Fun While Deep In Consumer Debt?

Anthony Weiner Speaking At Rally In NYC

Anthony Weiner too stubborn to quit. NYC 2013.

During the depths of the financial crisis, one of the proposals I sent to the Obama administration was to institute spending curbs based on high school or college grade point averages. It didn’t matter whether you went to Community College or UC Berkeley since everybody’s circumstances are different. What matters is how well you did in school to justify want based spending as opposed to need based spending.

For example, if you were a D+ student (sub 2.0 GPA out of 4.0) you are only allowed to buy generic clothing and ride public transportation to work for the rest of your life. No car or lollipops for you. If you were a B student, then suddenly that new $20,000 Honda Civic is available to you after the dealer scans your ID to check the government GPA database. If you are an A student, then you are free to buy whatever you want because logic dictates that if you are smart enough to study hard in school then you are smart enough to practice good financial habits.

I was shocked Obama never acknowledged my letter because my proposal would only help the government expand their authority (think PRISM) over the people of this great nation. We voted for Big Government and I wanted to support the cause as much as possible as I figured out a way to go John Galt. Although Washington DC stayed silent, fellow patriotic Americans voiced their opinions in the comments section of the post, Tax Rates Based On Work Ethic Shall Fix The World. It’s all about creating incentives.

Just imagine a world where everything is rational. Imagine everybody reading their mortgage contracts before signing so that they are aware of their financial obligations instead of blaming others when they can’t pay. Imagine if everybody adopted the attitude of not deserving something until worked for? Now imagine a country where everybody is middle class and pitches in to support our country. There would be no socioeconomic warfare, just equality. We can always dream right?

DO WHAT YOU WANT WITH YOUR FINANCES, JUST DON’T HURT OTHERS