How deeply are we in debt?

[Balog]

I've seen a lot of contradictory evidence about the debt burden carried by most Americans. A lot of talk of people living beyond their means, depending on multiple income streams etc. However, I only hear talk; no solid facts are provided.

How much of this is true? Is the median American family deeply in debt?

[K Frame]

I'm not a family, so I don't count.

Am I deeply in debt?

What kind of debt? Bad debt or good debt?

Taken together, yes, I'm monumentally in debt.

Remove my mortgage and home equity loan (both considered good debt), add up my revolving/unsecured credit, and no, I'm not deeply in debt.

[mtnbkr]

What constitutes "deep in debt"?  A mortgage?  Some credit card debt?  Maxed out cards?  One car loan?  Two?  Three? 

I don't consider a mortgage part of a family's debt load.  You have to live somewhere.  As long as your mortgage payment minus the tax benefit isn't greater than what you would pay for an apartment, you're coming out ahead. 

I'm also not bothered by a small amount of CC debt as long as the payments aren't onerous and you're able to pay them off in a few months or so.  I'll go from $0 to a grand or so on the CC when circumstances arise, but I'd rather use the card and pay it off over a period of a few months rather than dip into savings and risk not putting the money back.  I'll also take out a loan to buy a car, but I buy a less expensive car than I can afford and pay it off early (I'll be paying off the 5yr note on my current car in 2yrs (actually, a few months from now).

I tend to use credit to avoid dipping into savings, but pay off those debts rapidly to avoid the interest.  With a credit score in the 800s, it must not be hurting me.

Chris

[280plus]

I'm personally up to my ears in debt, although I have enough to cover it in the bank. I incurred it buying trucks, equipment, tools etc. I'll tell you what really ticks me off. By the end of each year I've managed to accumulate a little nest egg that could very well help to pay my balance(s) down but instead I must hand it over to the feds on April 15th. Every year they take the little bit I have left over from the fruits of my labor throughout the previous year. It's REALLY beginning to annoy me. And this is FICA "Social Security" we're talking about. So the gov takes my money to, supposedly, keep me from being destitute later in life and leaves me destitute now. If I had been able to put that excess into paying down my debt instead of giving it to them, I'd be a lot further along on it than I am right now and would stand a good chance of being fairly well off in the future. The other trouble is I KNOW that should I die before I'm able to recoup any of this money they take from me they'll give my wife a paltry $255 for funeral expenses and keep all the rest of it.

An independent worker must pay 15.4% of their net BEFORE DEDUCTIONS to SS every year. So if you profited $20,000 last year (which ain't much) the ,gov wants you to hand over $3080 of it. My accountant says if more people paid lump sums out of their pocket like I do instead of letting the gov do it automatically each week so you're not really aware of how much those grubbers are getting, taxes would go down in a heartbeat.

Grrrrr.....  

[Balog]

I was mainly thinking of unsecured or revolving debt. My sisters use cc's to pay all their bills, then simply pay off the cards. Worked great for them (high 700's if not more) but can we just be honest and admit that isn't how most people use their debt?

I don't consider a mortgage part of a family's debt load.  You have to live somewhere.  As long as your mortgage payment minus the tax benefit isn't greater than what you would pay for an apartment, you're coming out ahead. 
Chris

Absolutely; I couldn't agree more. However, it's worth noting that all those Dust Bowl farmers needed land to work. And the tens of thousands of homes in foreclosure that were bought as "an investment" whose value has plummeted.

I suppose I'm thinking more in terms of debt-to-income ratio than total amount, as well as ratio of payments made toward debt vs those made toward savings. And although I'm pretty sure you can't quantify it, the prudence of that ratio. A family that depends on two large incomes to pay for it's enormous McMansion and two new Mercedes might have the same ratio as a middle class family living in a modest home with a sensible car, but I know who I'd consider to be the wiser.

[onions!]

I'm doing all right.
I have no credit cards,vehicle payments,or any other loans.
My mortgage payment is covered by one paycheck.

I've been eyebrow deep in debt before(credit cards & car payments in my early twenties).Never again.

[jefnvk]

No offense, but I think there is a discrepency between members of this board, and the general public who has the problem.

You would be amazed at what college kids can get for credit cards.  I've had to request my credit line be REDUCED before.  I've been approved for over $10k before on a single card, this is a full time student with no income.  The two cards I have now both are sitting at a $3k limit, from starting out at $500 each and me not requesting the limit be raised.  As soon as I return from Europe, they're both going back to under $1k.  

One of my friends has over $10k in credit card debt, this is not student loands, this is wanting new car stereos or TV's or video games.  I know a few more who arent in such a big hole, but still view credit cards as something you can use and never worry about.

I think the problem lies more with the younger people who have never used much besides credit cards.

[Headless Thompson Gunner]

I'm doing well.  All the folks I know well enough to have a glimpse of their finances are all doing alright too.  We're all mostly college students and recent grads.  None of us have any unreasonable debt. Maybe I just travel in the right circles, I dunno.

There are stoopid people out there.  Always have been, always will be.  You'll hear about them whenever they make spectacular financial mistakes and get themselves hosed.  You'll hear about them more frequently during election time, particularly when there are populists running.

You won't hear about the rest of us.  You won't hear about the hundreds of millions of Americans who managing their finances properly and not drawing attention to themselves by their own gross mismanagement.

The subprime mortgage "crises" is an excellent example.  Listen to the media and you might think that most of us are in danger of losing our homes.  Turns out that only 5% of mortgages are bad, the other 95% are reasonable loans on sound property being paid on-time-every-time by sensible people.

[bedlamite]

I used to be in debt up to my eyeballs. As of November the only payment left is my mortgage, which is 30% of my takehome. No more CC, no car payment, no bike payment. There may be a new gun or three in the cabinet this year.

[jefnvk]

Turns out that only 5% of mortgages are bad

Even if only 5% are bad, thats still a big chunk of change disappearing.

[roo_ster]

My wife lived through an oil bust in Texas that left her family broken and much less affluent.  I am inherently conservative with money.

Currently, only the 30 year fixed mortgage/prop taxes/home ins (less than 30% of take home) and a pittance on a credit card. 

I use the CC a couple times per month to avoid hitting savings if I have a large expense, but pay it off, posthaste, from income.

All our autos are paid off (Praise the Lord!).
1995 Nissan Altima, 108K mi
1997 Nissan Ext Cab Pickup, 150K mi
2004 Honda Element, 75K mi  (Our "new" car)

Next time we buy a house, we are limiting our expenditure to what we can get on 25% of my income for a 15 year fixed mortgage.  We will put down a substantial down payment, too.

We are doing OK, but not keeping up with the Joneses.  Our computer equipment is bought used, as was our latest auto (106K miles on odo).  We live in a pretty small house relative to colleagues.  I buy one gun per year, nowadays (sniff, sniff).  I do not buy electronic gadgets one would expect an engineer geek like me to buy.

We spend serious dollars on private education for the kids.  I guess that is our major discretionary expense.

The Joneses get all the goodies, but we avoid the debt.  That is OK with us.

[drewtam]

I found some real data from the Federal Reserve 
http://www.federalreserve.gov/releases/g19/current/g19.htm

So a made a quick spreadsheet:
Debt in Billions      
$938   Revolving   
$1,568   Non-revolving   
$2,505   Total   

People (billions)      
0.3      

Debt (dollars)      
$3,125   per capita   Revolving
$5,226   per capita   Non-revolving
$8,351   Total per capita

Then I looked up wiki for the US per capita income:
http://en.wikipedia.org/wiki/Per_capita_income
http://en.wikipedia.org/wiki/Average_per_capita_income_in_the_United_States
United States    $33,050 of personal income per individual

That gives a total debt to income ratio:
9.5%   per capita (Revolving)
15.8%   per capita (Non-revolving)
25.3%   Total per capita

That doesn't look too bad to me. Thats actually a better debt ratio than I am in. But I am 25 with a new family and all of my debt is non revolving (no credit card debt  ).

[BridgeWalker]

I'm in law school. I try not to think about debt.  Pretty much, I'm figuring that lawyers make about $20k/year for the first ten years or so, once the student loan bill is covered.   

[BryanP]

Until a couple of weeks ago when I had to pay for a sudden unexpected funeral (which involved savaging my savings account and putting the remaining balance on a credit card) I had no debt whatsoever except for my mortgage.  My intention is to be completely debt free, including my mortgage, by the time I turn 45.

[brimic]

Hmm no debt here except mortgage which I'll have paid off in about 12 more years. My payments are only about $900/month, but its the taxes that might eventually drive me out of my home and out of my state: I have to put aside $400/month for property taxes. If the tax and spend liberal hell drives me out of the state, I'll be in good company, Miller Brewing along with a few other big name Wisconsin corporations might move out of the state for the same reasons.

[mfree]

I was in it deeply for a while and just out of college, but I convinced my bank to issue an unsecured loan to cover it all.

I've now got zero credit card debt, a ~$6k bank loan, and my truck and house make the remainder of the entirety of my debt.

Last month I got the whole thing down into five digits and I am *thrilled* :-D

[MillCreek]

Let's see, I still owe about $ 108,000 on the house on a 15 year note that will be paid off in 9 years.  I use my credit card for most of my buying, since I earn 1% of all purchases added to my REI dividend.  But I pay off the card every two weeks when I get paid.  The cars and the kids braces are all paid for, so I have essentially no debt other than the mortgage. 

I am clearly not meeting my per-capita debt requirements, so someone else must be making up for me!

[Chris]

My major debts are the mortgage and my student loans.  Include those, and I'm in major debt.  Take those out, and I'm doing fine.  Of course, without those loans, I'm paying rent on an apartment, and working at some other job, probably making half what I am now.

[Paddy]

Debt is good. It fuels consumption which is the powerhouse of our economy. Follow the lead of the Fed, who just lowered interest rates again in order to encourage more debt.  So get out there spend and spend some more and just charge it. It's your patriotic duty.

[charby]

My major debt is my student loans.

Other than that between my wife and I we are probably less than 10k with most of that a car loan.

We currently rent because it is cheaper to rent the same sq ft as it is to buy.  1600 sq ft w/ 2 car garage =  $825 monthly rent payment  vs $1100-1200 monthy mortgage payment.

More than likely we will be moving away from the area in less than 5 years.

-C

[Firethorn]

Let's see, I still owe about $ 108,000 on the house on a 15 year note that will be paid off in 9 years.  I use my credit card for most of my buying, since I earn 1% of all purchases added to my REI dividend.

Same reason I use my CC, but I pay it of monthly, not bi-monthly.  Not going to give them their money back until I have to.

Oh, and I owe about $12k on my home and will have it paid off in 3 more years.

My car, bought *new* so I know it's complete history(and that maintenance has been done right and on time), was my only other debt until recently, when I finished paying it off.  The car title is now sitting in my safety deposit box and the payment going into investments(earmarked for another new vehicle).

I might not max out my 2007 IRA investment, but by the same token I opened a non-retirement mutual fund that the money went into instead.  That and bought stuff like a new water heater*.  I needed more flexability.  Though I haven't been a happy camper about the market since Jan 1.  Oh well, it'll recover.  Right now I'm letting the money sit in my checking account, thought I should probably open a money-market account(have several thousand in there at the moment) while waiting for the right time to start investing again.

I wonder, how do would they count my CC debt?  ~$1k a month, but paid in full each month.  Would I count as $1k in revolving debt for the year, or $12k?

*I got a subtantially upgraded model, so it should pay for itself fairly quickly.  Enough hot water without turning it up, and substantially more insulation.

[MechAg94]

I am pretty much debt free other than the mortgage.  I am actually trying to work on saving some more money outside of 401K. 
I got out of college with relatively little debt.  I worked a Coop job about 4 semesters which really helped reduce the potential CC debt I might have had.  My problem was when I started working, I had an apartment that was a little too much and a truck that was a little too much and it made it tough put away any meaningful savings.  I am in a much better position now, but wish I had saving more 10 years ago.

Most of the professional types I know are in good circumstances regarding debt.  I know one engineer who lives with his parents.  He wants to move out, but he said he saves like $4000 a month and is reluctant to move out and reduce that.    He is actually not the nerdy type either. 

[Werewolf]

My only debt is my mortgage which will be paid off in under 10 years.

I have 2 credit cards, one for online purchases, one for gas and the occasional lunch. Both get paid down to ZERO every month.

2 Cars and no car payments.

Since a mortgage goes towards housing cost which you're gonna have whether you rent or own I pretty much don't count it as real debt so I guess that means I am essentially debtless.

[Boomhauer]

You would be amazed at what college kids can get for credit cards.  I've had to request my credit line be REDUCED before.  I've been approved for over $10k before on a single card, this is a full time student with no income.  The two cards I have now both are sitting at a $3k limit, from starting out at $500 each and me not requesting the limit be raised.  As soon as I return from Europe, they're both going back to under $1k. 

Hell, aparently credit card companies give colleges money if they allow them access to the student database. I don't have a credit card (probably one of 3 people in the country) so I don't have to worry about that. I do have a checking account with a debit card, and I find myself swiping the plastic all too much. Probably a good thing I don't have a CC

But I can't go in debt- I can only go broke...

But I do have a decent job, so I am bring in some money.

[Art Eatman]

Well, think about that revolving debt for a moment.  I have none, nor my wife.  Of several friends and neighbors, none.  Zero revolving debt.

Somebody's gotta make up for us, and that means somebody out there is in deep doo-doo.  And, yeah, probably among the young and the early middle-aged, since in general Old Pharts are more conservative about the "I want, therefore I buy..." sort of thing.

Probably where the major problems come in has to do with ready-cash savings.  Not much of that.  And pulling money from something like a 401k has a lot of penalties come old age.