This pandemic is continuing to place strain on many Americans. Over the past year, total household debt increased, but revolving credit card debt decreased. Yet, the cost of living continues to rise faster than household incomes, making it difficult for many Americans to make ends meet. Despite the ups and downs, one thing remains constant: the average household debt is getting larger. Here’s why. Read on to learn more about the causes of household debt and how to reduce it.
Mortgage debt
According to the latest US household debt statistics, the 30-year fixed mortgage rate hit 2.78% in November, the lowest level since the St. Louis Fed began compiling this data in 1971. This low rate has prompted a rush to refinance, with a new 0.5% refinance fee set to take effect in December. This trend has helped push down the average monthly mortgage payment in America, which hit $1,487 in 2019 and is predicted to hit $1100 in 2020.
Despite the rise in consumer debt, many households are still struggling to pay off their debt. In fact, nearly two-thirds of Americans have debt, and only half of those who have at least $20,000 in savings expect to work until they are 70 years old. Experts suggest that paying off your credit card balance as a habit is a smart way to prevent future problems. Mortgage debt is the most common type of debt, followed by auto loan and student loan debt.
The median income in the US was $79,900 in Q4 of 2019. That’s up $35,000 since 2000. Meanwhile, average household debt is $145,000, the highest level since the Great Recession. However, mortgage debt accounts for just over half of this. However, this figure does not account for a majority of consumer debt. In fact, the average household in the US has the highest amount of debt, with nearly $14.3 trillion.
The Federal Reserve Board’s latest Household Finances report has revealed that mortgage debt is the largest type of household debt. Next to the mortgage, the average household debt also includes credit card and student loans. Although the average mortgage balance is higher than the average household debt, other types of debt are not equal. While student loans have become the focus of political debate, car loans have doubled since 2010.
Student loan debt
The data show that student loan debt is a major problem among young people, with 37% of households headed by college-educated adults carrying outstanding balances. Including deferred and repaid loans, the average outstanding balance for a household headed by a college-educated adult is $13,000, and the median amount owed is $12,800. The data also shows that these young people are under greater financial stress than comparable households without student debt.
The data reveal that women have higher levels of student debt than men, and it is disproportionately higher among non-Hispanic Black adults, 25-34-year-olds, and adults with never-married status. The data also reveals that student loan debt is largely tied to the highest degree received by adults. Almost one-fourth of adults with a master’s or doctorate degree has some student debt, while fewer than one-fifth of adults with a two-year degree or associate degree have student loan debt. The data also shows that adults with a high school diploma or a certificate of completion have the lowest levels of student debt, but even those with such a certificate are at risk of accumulating debt if they don’t complete their course requirements.
Among college students, the average debt is $28,800. This number varies significantly, and there are various factors that determine a person’s individual level of debt. Graduate-level degree holders hold 48% of the total debt, which means that they spent longer in school and incurred more debt at a higher interest rate. Furthermore, interest rates on federal student loans are at a high, with an average interest rate of 4.3% for the 2020 to 2021 school year.
Revolving consumer debt
The average American household has $38,000 in revolving consumer debt, or credit cards. This debt can be considered a means to an end – a higher education for a child or a better paying job for an adult. Regardless of the motivation, consumers are not able to live debt-free, and interest rates are constantly rising. The average American household now spends nearly half of its monthly income on interest alone.
Revolving consumer debt is the number one source of credit card debt, accounting for over a third of all debt in the United States. Since the end of the Great Recession, the debt of American households has skyrocketed. In the first quarter of 2021, the average household owed $145,000, an increase of over $35,000 since 2000. This debt is significantly higher than the $50,971 that the average American household carried in the first quarter of 2007.
While home mortgages are not considered consumer debt, they are personal investments in residential real estate. The recession affected revolving consumer debt, but the numbers were steady month after month from 2009 to May 2011. The Dodd-Frank Wall Street Reform Act increased regulations on credit cards, and the Consumer Financial Protection Bureau was established to protect consumers. In recent years, auto loans have increased, especially due to historically low interest rates.
Consumers have accumulated over $4 trillion in total credit since 1943. Despite the high level of revolving debt, many Americans do not understand the risks involved in using credit cards to finance their needs. However, the good news is that the amount of revolving debt in the United States is manageable. The Federal Reserve has reported on consumer debt each month since 1943. While revolving debt is the most common type of debt, it is still relatively easy to keep up with, as long as consumers do not take on more than they can afford.
Home equity line of credit
If you’re looking to take out a home equity line of credit, you may be wondering which banks offer the best deals. There are dozens of lenders, but TD Bank may be one of the best for the average household. The bank has over 500 locations and claims to offer the lowest interest rate on a home equity line of credit (HELOC). The bank’s application process is straightforward, and their website also offers an interest rate discount of 0.5 percent if you set up an autopay account.
A home equity line of credit can help you pay off your debt by providing a lump-sum loan for up to 80% of your home’s value. The lender will require you to make regular payments on the principal and interest of the loan. While you can borrow up to 65% of the home’s value, it is usually best to limit yourself to a maximum of eighty percent. Your monthly payments will be a combination of interest and principal, so it’s important to choose the right amount for you.
A home equity line of credit comes with fees similar to a standard mortgage. The fees typically range from two percent to five percent of the total loan amount. In some cases, lenders may waive the fees. Another factor to consider is the security of your house. If you default on your loan, you could lose your home. The monthly payments of a home equity line of credit are often added to your mortgage payment, so be aware of any extra fees before taking one out.
If you’re worried about your finances, a home equity line of credit may be the best option. A home equity line of credit is like a credit card that lets you access cash based on the current value of your home. Like a credit card, you can repay the money on a monthly basis just like a credit card. If you pay it back on time, the money is available again to use for future expenses.
HELOC
HELOC stands for home equity line of credit, and it is the average household’s second largest form of debt. The average household has approximately $170,000 in credit card debt, but that total doesn’t include home equity lines of credit. A HELOC is a long-term loan, and repayment is typically 30 years. However, it is possible to rescind a HELOC if you are struggling with repayment.
A HELOC is a great way to increase your credit, and the interest rates are adjustable. You can borrow up to 85% of your home’s value, depending on your credit history and debts. The interest rate will fluctuate, and the interest rate is based on your credit history and your monthly income. In some cases, the rate will fluctuate with market conditions, but the markup should be reasonable.
Interest rates are another factor that can negatively affect your HELOC. Mortgage rates dropped during the Great Recession, and many homeowners chose to refinance to get a lower interest rate or to cash out some of their equity. However, since then, mortgage rates have steadily risen, both due to inflation and the anticipation of the Federal Reserve raising interest rates. This is why many homeowners have to wait until 2022 to pay off their HELOCs.
The interest paid on HELOCs can be tax-deductible. While credit card interest cannot be deducted, HELOC interest is. That means that you can use the funds to pay off other debt and consolidate it into a single, low-interest HELOC. By consolidating your debt into a single HELOC, you can save hundreds of dollars in interest on your credit card balances. And the interest rate for HELOC is typically lower than credit card debt.
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