How Much Debt Americans Racked Up Last Year
As of the end of 2023, Americans had racked up an all-time record of $1.13 trillion in credit card debt. Total debt levels reached $17.503 trillion, or $104,215 per household.
Part of this was due to high inflation and interest rates, as wages for many Americans could not keep up with rising costs. But financial literacy also likely played a role. According to financial personality Suze Orman, “probably 95%” of Americans are financially illiterate, something that can contribute to overspending, living beyond one’s means and rising credit debt levels.
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To help assess the state of finances in America, GOBankingRates conducted a survey of 1,008 Americans regarding a variety of financial subjects, including debt levels. Here’s a look at how much debt respondents accumulated over the past year, along with some tips on how to manage debt better and find the means to pay it off.
How Much Debt Did Americans Rack Up Last Year?
According to data from credit reporting agency TransUnion, the average bank card balance rose 10% year over year, from $5,805 to $6,360. That $555 average increase matches fairly well with the responses that participants gave in the GOBankingRates study. Although almost 38% indicated that they didn’t increase their debt at all — which was far and away the most popular response — 22% said that their debt increased between $0.01 and $1,000. Overall, this means that roughly half of the survey respondents saw a debt increase of up to $1,000, while debt increased even more for the other half.
One of the most troubling findings in the survey was that nearly 20% of respondents said their debt increased by more than $5,000, with almost 9% indicating it grew by more than $10,000. It’s important to note that the survey asked respondents about all non-mortgage debt, not just credit card debt. But regardless of the type of non-mortgage debt, increases in debt levels translate to increased monthly payments for respondents.
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What Are Some Strategies To Help Pay Off Debt?
The two most commonly cited strategies for paying off debt are the snowball method and the avalanche method.
The debt snowball method involves paying off your smallest loans first, then moving to the larger ones, regardless of the interest rate on the loan. The idea is that if you can build momentum and confidence in paying off loans quickly, you’re more likely to continue attacking the larger ones.
The debt avalanche method, on the other hand, takes a more mathematical approach by paying off the highest-rate debt first. While theoretically this method would result in the smallest amount of interest paid, it can also be harder to complete psychologically, especially if the highest-rate debt is the largest one.
The bottom line is that whichever method allows you to stick with your debt repayment plan, the better off you will be in the long run.
How Can You Avoid Falling Into Debt?
The best way to dig yourself out of debt is to avoid falling into it in the first place. In terms of credit card debt — which in most cases carries by far the highest interest rates — you’ll have to learn to live within your means. This is best accomplished through using a budget. When you write down exactly how much you earn and spend, you can see exactly where you’re outliving your income.
For example, if you earn $5,000 per month and your monthly necessities cost $4,800, you can’t spend more than $200 on discretionary items like eating out or you’ll be living beyond your means. Any spending above that level will drive you into debt.
If you don’t have the discipline to simply stop spending, consider using a strategy that makes it easier for you. For example, if you stop using credit cards and live off cash only, you won’t physically have the money to overspend. Another option is the “envelope method,” in which you put money into various physical or virtual envelopes when you are paid, and you aren’t allowed to spend more than that amount until the following month. For example, with your $5,000 paycheck, you might put $2,000 into your housing envelope, $500 into savings/investments, $300 into groceries, $200 into transportation and so on.
Regardless of which method works best for you, the important thing is to find a way that your spending every month is less than what you earn. This basic principle is the key to keeping out of debt.
Methodology: GOBankingRates surveyed 1,008 Americans aged 18 and older from across the country between March 26 and April 1, 2024, asking twenty different questions: (1) Has a lack of financial literacy caused you to struggle with your money?; (2) Which current money hot topic is most confusing to you?; (3) Which money expert do you trust most for teaching you the basics of money?; (4) Since the pandemic started in 2020, do you think you have become smarter about your money?; (5) What poor money habits did you learn during your childhood? (select all that apply); (6) What poor money habits did you develop in your early adult years? (select all that apply); (7) What poor money habits have had an impact on your marriage/partnership? (select all that apply); (8) What poor money habits do you worry about passing on to your kids? (select all that apply); (9) What aspect of buying a car do you find most challenging/confusing?; (10) What aspect of buying a house do you find most challenging/confusing?; (11) What aspect of paying off debt do you find most challenging/confusing?; (12) What concerns you most about planning for retirement?; (13) What best describes your feelings about investing?; (14) How much have you saved in the last year?; (15) How much debt have you acquired in the last year, not including mortgage debt?; (16) Do you currently bring in enough money to cover your bills?; (17) How much do you think about your financial status?; (18) What best describes your feelings about managing your money?; (19) What is your monthly car payment?; and (20) How much income do you think is needed for a middle-class family to live comfortably?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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This article originally appeared on GOBankingRates.com: How Much Debt Americans Racked Up Last Year
