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When you owe a lot of money, that can sometimes be a big problem. Every dollar you have committed to debt is money that you can't put into your savings account . It's also money you can't invest in a brokerage account to help you build a secure retirement.
Now, some debt is inevitable for most people, as you may need or want a mortgage or a car loan. But you don't want to let any debt get out of control, whether it's seen as "good" debt like a home loan or "bad" debt like credit cards.
To get an idea of how you're doing with your debt obligations, it can be helpful to compare how much you owe to the outstanding balances of your fellow Americans. The data below will allow you to do that.
Here's how much money the average American owes
According to research from The Motley Fool Ascent, Americans collectively owed $17.796 trillion as of the second quarter of 2024. That's such a big number that it's hard to fathom, but breaking it down gives a little more insight:
- The average household debt in 2023 was $104,215
- Average credit card debt was $6,501
- Average mortgage debt was $244,498
- Average auto loan debt was $24,035
- Average personal loan debt was $11,829
Of course not everyone has all of these different kinds of debt. You may not own a home yet, or you may not have a personal loan, as many Americans don't.
Still, it's helpful to see just how large the debt burden is and to understand where you stand relative to the substantial amount of money Americans owe to different creditors.
Is debt impacting your life?
While comparing your debt to others can help you see if you may have gone overboard with borrowing, what's most important is to understand how your own debt is impacting your life.
You may have more debt than others. But this isn't always a bad thing if you have a higher income than most people and your debt is so-called "good" debt like a mortgage or business loan that helps you grow wealth.
Alternatively, you may have less debt than average, but if your income is also much lower than most people's and the majority of your debt is in credit cards and payday loans, you're probably in trouble. So, instead of focusing on the balances alone, instead, think about whether the debt you have is positively or negatively affecting your finances.
How to pay off debt
If you have a mortgage at a rate of 3.00% and you're building home equity while investing a good amount of money, there's no reason to pay off that low-interest mortgage loan. In fact, it's a huge asset during this time of record-high rates. You should pay the minimum on it as long as you can while investing any spare cash at a higher rate.
On the other hand, if you have a lot of debt that's charging more in interest than you could earn by investing -- or if your debt is making it hard to accomplish other financial goals -- then you'll want to make a debt payoff plan ASAP. To do that, start by figuring out how much extra you can put toward debt each month, then begin making extra payments on one specific debt.
You can choose to pay off the debt with the lowest balance first if you think you need quick wins to stay motivated. Then, roll the money into your debt with the next lowest balance, and so on. Alternatively, you could start by repaying your debt with the highest rate first, moving on down the list. These approaches are called the debt snowball and the debt avalanche methods, respectively.
Whatever approach you pick, the key is going to be getting serious about a payoff plan for debt that's negatively impacting your finances, paying as much on it as you can, and bringing those balances down to $0. This won't just help you to move toward owing less than the average American -- it will help you improve your long-term financial picture.
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