Debt is an unwelcome guest at the table in many American households. The average U.S. household with debt carries $15,549 in credit card debt and $136,197 in total debt.
It’s easy to say we should simply pay off our balances and free ourselves of the burdens — financial and emotional — that come with financing many aspects of our lives. But it’s not that simple.
When NerdWallet dug into the “why” and the psychology behind debt, as well as its cost, it became clear that increasing debt loads aren’t just a result of irresponsible spending. There are many factors at play in the increasing amount of debt being carried in homes across the country.
This is the 2015 version of NerdWallet's annual household debt study. Click here for the most recent study.
But there is hope. Americans can rid themselves of heavy debt and its financial toll.
Before we begin eradicating debt, it’s important to know how much we’re working with. Here’s what the typical household is carrying, as well as total consumer debt in the U.S.:
|Total owed by average U.S. household carrying this type of debt||Total debt owed by U.S. consumers|
|Credit cards||$15,549||$802 billion|
|Auto loans||$25,790||$1.05 trillion|
|Student loans||$45,439||$1.2 trillion
|Any type of debt||$136,197||$12.87 trillion|
Debt balances are current as of September 2015
But not all debt is equal. Under the right circumstances, mortgage, student and auto loan debt can help strengthen your financial position. However, credit card debt — and other debt with high interest rates — tends to be unnecessarily costly and should be paid off as soon as possible.
NerdWallet analyzed data from several sources, including the New York Federal Reserve and the U.S. Census Bureau, then commissioned an online survey, conducted by Harris Poll, of more than 2,000 adults (see methodology below) to determine why Americans have so much debt. As part of NerdWallet’s mission to deliver clarity for all of life’s financial decisions, we’ve scrutinized the results and provided tips for consumers to make room in their budgets, understand their debt and pay down their balances to avoid interest charges.
Why debt has grown: The rise in the cost of living has outpaced income growth over the past 12 years. While median household income has grown 26% since 2003, household expenses have outpaced it significantly — with medical costs growing by 51% and food and beverage prices increasing by 37% in that same span. 
The psychology of debt: Consumers vastly underestimate or underreport how much debt they have. In fact, as of 2013, actual lender-reported credit card debt was 155% greater than borrower-reported balances. 
The cost of debt: The average household is paying a total of $6,658 in interest per year.  This is 9% of the average household income ($75,591)  being spent on interest alone.
In this report, we’ll discuss the “why” behind rising debt loads, potential reasons why consumer- and lender-reported debt amounts — particularly credit card balances — are so different, and how much debt is costing consumers in interest.
“I’ve been there — credit card, student, personal and automobile debt,” says Sean McQuay, NerdWallet’s resident credit card expert and a former strategy analyst at Visa. “With tight budgeting, I’ve managed to pay off my credit card debt, but, like many Americans, I still carry other debt balances. But I’m working on it. Understanding debt and its underlying causes is key to our future victories over debt.”
Debt soars as it becomes more expensive to be an American
Household income has grown by 26% in the past 12 years, but the cost of living has gone up 29% in that time period. And some of the largest expenses for consumers — like medical care, food and housing — have significantly outpaced income growth.
When cost of living outpaces income growth, debt increases
It would be easy to say consumers are spending irresponsibly, leaving the recession (and their budgets) in the dust. But it’s not quite that simple.
- Median Household Income
- Overall Cost of Goods
Only three of the major spending categories haven’t outpaced income growth: apparel, recreation and transportation. But apparel and recreation are relatively immaterial expenses; they don’t make up a large portion of the typical consumer budget. 
The total cost of living has increased by 29% since 2003, whereas income has grown only 26% in that time. “While 3% doesn’t seem like a significant difference, this gap becomes much more significant for Americans that have acute or chronic health problems, or live in a city with a high cost of living, or are attending college. It makes perfect sense, then, that debt has increased during this time. The cost of living has simply outpaced income,” McQuay says.
- Real Median Household Income
- Real Average Household Debt
After adjusting for inflation, household debt has grown 15% faster than household income since 2003. This is a concerning spread, but it has improved significantly from where it was in 2009, during the recession, when the difference was a whopping 42%. 
“One upside to the recession is that it forced people to tighten their belts,” McQuay says. “While that tightening was painful at the time, it helped slow down the growth of consumer debt.”
What you should do
Try to cut expenses. “This sounds simple, but it’s crucial: You need to know how much you make and what you spend it on. Then, figure out which expenses you can cut down on. Set up an automatic savings plan and pretend that that money doesn’t exist,” McQuay says.
"Ask yourself: Do I really still need my cable subscription now that I’m on Netflix? Do I still need to have a landline phone? Do I still need that car I hardly drive? There are basic things consumers at any income level can do to increase their wealth — even if that just means being able to pay off their credit card balances faster.”
Don’t beat yourself up if you’re finding it increasingly harder to stay above water; the gap in income and expense growth is no joke. Check out NerdWallet's salary negotiation guide if you think you’re being underpaid for your work. Then, learn how to make more and spend less to free up money to put toward your debt or put less stress on your budget.
Consumers are underreporting debt, may be ashamed of card balances
Consumers and lenders are reporting vastly different credit card debt balances — to the tune of more than $415 billion as of 2013  — likely because consumers are underreporting their debt. That means Americans claim to have less than half the debt they actually have. This underreporting could be unintentional, but it could be because of the stigma attached to credit card debt.
Consumers might not know how much debt they have
There are plenty of reasons why consumers might underreport credit card debt.
Some don’t know how much debt they actually have. In our survey, 23% of people with a credit card say they have been surprised at least some of the time by their bill.  This suggests that consumers struggle to keep track of their balances.
It’s also possible that consumers aren’t reporting balances they’re planning on paying off. But 13% of consumers with credit cards say they have forgotten at least sometimes to pay their bill , so those planned payoffs might not be happening.
Consumers could be excluding credit card debt they don’t consider personal debt. For instance, small-business owners might put business purchases on personal cards, but don’t think to include them in self-reported balances because they don’t consider these balances part of their personal debt loads. But lenders wouldn’t distinguish between these purchases, and would report them as personal debt.
There's also the possibility that consumers and lenders were surveyed at different times, with lenders reporting when balances were higher and consumers reporting when balances were lower.
But despite these possibilities, the difference in lender- and borrower-reported balances is too great to be completely unintentional.
Lenders could be inflating their assets
Although it's an illegal practice, there is motivation for lenders to overreport consumer debt. Accounts receivable, or money owed to a company by borrowers, is an asset on a credit card issuer’s balance sheet. The greater a company’s assets and the lower its liabilities, the higher the company’s value. Because of this, lenders could be inflating reported balances.
But that would be a very risky move, and we doubt it’s driving the difference. Consumers have both the incentive and opportunity to underreport their balances. Lenders have the incentive to inflate consumer debts, but because of strict reporting standards, the opportunity probably isn’t there — and isn’t worth the risk anyway.
Consumers are embarrassed about their growing debt loads
There is a possibility that consumers are intentionally underreporting their credit card balances because of the stigma surrounding debt.
According to our survey, 70% of Americans say there is a greater stigma around credit card debt than any other type of debt , which might help to explain why other forms of debt — including mortgages — are more accurately reported.
This stigma causes many Americans to be embarrassed by their balances. About 35% of those surveyed perceived credit card debt to be embarrassing and reported that they would feel more embarrassment over revealing credit card debt to others than they would over other types of debt, including medical and student loans.  These feelings were stronger among students and young people surveyed.
The survey also revealed that the stigma isn’t applied to everyone equally: Only 1 in 4 Americans would judge a friend or family member for having credit card debt, but almost half would be less interested in dating someone who carries a balance. 
“The stigma is real, and it can be damaging and counterproductive,” McQuay says.
“My message to Americans in debt: You are not alone. Reach out and see what’s worked for other people. Don’t ignore your debt — come to terms with it, and climb out of it.”
What you should do
Know how much credit card debt you have, and create a plan to get rid of it. Being ashamed of your balances won’t make them go away. Aim to figure out how much debt you have. If you can’t remember where you have accounts open, go to AnnualCreditReport.com and pull your credit reports; you get one free report once a year from each of the three credit reporting bureaus. Keep in mind that the balances in your accounts could differ from the balances on your reports, depending on when they were reported. Once you know how much debt you have, you can devise a plan to eradicate it.
Curious about how you stack up against your neighbors? Check out our map comparing credit card, student loan and mortgage debt across the United States.
The high cost of rising debt loads
The average household with debt pays $6,658 in interest per year, meaning 9% of the average household income ($75,591) is being spent on interest alone. This interest is accrued on a total average debt of $125,936 (as of 2013), a figure that makes up 167% of the average household income. 
Consumers are spending over $2,500 a year on credit card interest
Using debt wisely can be a smart financial move — for example, it allows you to buy a home without having to save up the full cost upfront. But debt comes with costs. The average American with any type of debt pays $6,658 in interest payments each year. Credit card debt — one of the most expensive types of debt — costs consumers an average of $2,630 per year in interest, assuming an average APR of 18%. 
As your income grows, so does the cost of your debt
Just making more money doesn’t solve debt problems. In fact, according to our findings, debt loads increase as income does; therefore, annual interest payments are larger. This makes sense, as higher-income individuals are able to more easily obtain higher credit limits, giving them more room to rack up big balances. Low-income earners, on the other hand, don’t have access to a lot of credit.
Still, the difference is striking: Households that bring in more than $157,479 per year spend almost $4,000 more in credit card interest than households that makes less than $21,432, and over $17,000 more in interest across debt types. 
But it’s important to look at debt in relation to income to see the whole picture. Let’s take the average debt owed by someone who makes $20,000 versus someone who makes $150,000 per year. The former owes $38,871; the latter owes $208,217. This means that the lower-income household owes 194% of its income in debt. The higher-income household owes 139% of its annual income in total debt.  For reference, the U.S. owes roughly 101% of its national income. 
Credit card debt follows the same pattern. The low-income household owes $7,662 in credit card debt, or 38% of its annual income. The high-income household has a card balance of $21,296, or 14% of its income.  Despite much higher debt numbers, the higher-income household owes a significantly smaller percentage of its annual income. So while high-income households spend more, it affects their bottom lines much less.
Children and what they mean for your debt load
Statistics show that it costs almost a quarter of a million dollars to raise a child from birth to age 18, not including the cost of college.  But does having children mean more debt? Data show that your relationship status has an impact.
Single people with children pay an average of $3,648 in yearly interest payments, which is less than single childless people of all ages. But couples with kids pay $9,539 in annual interest payments, which is more than couples without. 
“It’s likely that those single-income earners are simply limited in their ability to borrow. It sounds cruel, but banks are less willing to loan to people with lower incomes — despite the fact that they arguably need it more,” McQuay says.
While single parents spend less on mortgage, student loan and auto debt than their childless counterparts, they do carry more credit card debt.  As credit card debt is likely the most expensive debt a household is carrying, it’s important to pay it off as soon as possible, regardless of whether you have children.
The (interest) cost of self-employment
Self-employment can be a rewarding work status, but it could mean incurring more debt than your employee counterparts. Households run by self-employed individuals spend $11,545 in interest annually, whereas heads of household working for someone else only pay $6,925 to finance their debt each year. In fact, self-employed people pay more in interest in every category considered, except for student loans. 
What you should do
Reduce your consumer debt, and, therefore, the costs of your debt. Despite the statistics, you needn’t give up your dreams of entrepreneurship or having a child to save money on interest. Be cognizant of how much consumer debt you’re carrying and the costs that come with it. Then work on paying down any high-interest debt, especially credit card balances.
To help you get started, check out NerdWallet’s getting out of credit card debt hub. If you’re like the average consumer, spending $2,630 (or more) on credit card interest each year, you can find a better use for that money. If not, we have a few ideas.
There are also a few other options to reduce your interest rates while you’re paying down debt. Look into personal loans or debt consolidation loans to consolidate your credit card debt, consider refinancing your student loans, and compare mortgage rates to make sure you’re getting the best possible deal on your home.
NerdWallet conducted an 11-question survey to understand consumers’ credit card payment habits and feelings around the different types of debt. This survey was conducted online within the United States by Harris Poll on behalf of NerdWallet from Nov. 2-4, 2015, among 2,017 adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact cc-studies[email protected].
NerdWallet also reviewed internal and external data sources. Internal data has been identified as such throughout this study. The external data sources are publicly available online:
- Board of Governors of the Federal Reserve System. “2013 Survey of Consumer Finances.”
- Bureau of Labor Statistics. “Consumer Price Index.”
- Federal Reserve Bank of New York. “The Center for Microeconomic Data.”
- Trading Economics. “Country List Government Debt to GDP.” December 2014.
- U.S. Census Bureau. “Families and Living Arrangements.”
- U.S. Department of Agriculture. “Parents Projected to Spend $245,340 to Raise a Child Born in 2013, According to USDA Report.” August 2014.
Our total debt number – for any type of debt – includes other types of debt that we haven’t called out here, so it won’t equal the sum of our totals for mortgage, credit card, auto and student loan debt. All numbers are rounded.
 CPIs, or consumer price indexes, measure the price changes of a market basket of consumer goods and services. The eight CPI groups are housing, transportation, food and beverages, medical care, apparel, education and communication, recreation, and other goods and services. According to the Bureau of Labor Statistics, the overall CPI went from 184 to 237.945 between 2003 and 2015. Medical care grew from 297.1 to 447.289 in this time period, and food and beverage increased from 180.5 to 248.09. To compare the increase in the CPI categories with income growth since 2003, we projected a 2015 median household income based on the rate of growth over the last 12 years. Our projections show median incomes of $43,318 and $54,597 in 2003 and 2015, respectively.
 According to the Federal Reserve Bank of New York, lender-reported credit card debt was $683 billion, as of December 2013. According to the U.S. Census Bureau, there were approximately 122,459,000 U.S. households as of 2013. According to the 2013 Survey of Consumer Finances, 38.1% of U.S. households reported having credit card debt and borrowers with debt reported $5,700 in household credit card debt.
 NerdWallet’s internal data shows an average credit card APR of 18%. The average total debt interest rate is 5.3%, which is calculated by taking the weighted average of credit card, mortgage, vehicle and education interest rates.
 According to the U.S. Census Bureau, the mean income was $75,591, as of 2014.
 According to the Bureau of Labor Statistics, apparel makes up 3.343% of CPI and recreation accounts for 5.75%, as of 2014.
 To compare the increase in household debt with income growth since 2003, we projected a 2015 median household income based on the rate of growth over the last 12 years. Our projections show median incomes of $49,777 and $54,597 in 2009 and 2015, respectively. Adjusted average household debt numbers are $119,850 and $95,990 in 2009 and 2015, respectively.
 The results of our survey conducted by Harris Poll showed that 23% of U.S. adults who have a credit card are surprised at least sometimes by a larger than expected credit card bill.
 The results of our survey conducted by Harris Poll showed that 13% of U.S. adults forget at least sometimes to pay any of their credit card bill(s).
 The results of our survey conducted by Harris Poll showed that 70% of U.S. adults strongly or somewhat agree that there’s more of a stigma around credit card debt than any other types of debt.
 The results of our survey conducted by Harris Poll showed that 35% of U.S. adults would be more embarrassed to tell others about credit card debt than any other type of debt.
 The results of our survey conducted by Harris Poll showed that 25% of U.S. adults strongly or somewhat agree that they would judge friends or family members for their credit card debt, and 49% strongly or somewhat agree that they would be less interested in dating someone if they knew they had credit card debt.
 Using consumer-reported data from the Survey of Consumer Finances, we scaled numbers up to meet lender-reported numbers, and used estimated average interest rates for the different types of debt. Households that made less than $21,432 paid annual interest of $1,379 on credit cards and $2,055 across all debt types. Households that made more than $157,479 paid annual interest of $5,120 on credit cards and $19,506 across all debt types. Households that made less than $21,432 owed $7,662 in credit card debt and $38,871 across all debt types. Households that made between $112,262 and $157,479 owed $21,296 in credit card debt and $208,217 across all debt types.
 According to Trading Economics, the United States’ debt to GDP was 101.17% as of December 2014.
 According to the U.S. Department of Agriculture, parents are projected to spend $245,340 to raise a child born in 2013, from birth to age 18.
 Using consumer-reported data from the Survey of Consumer Finances, we scaled numbers up to meet lender-reported numbers, and used estimated average interest rates for the different types of debt. Single people with children paid $3,648 in interest across all debt types, whereas single people without kids paid $4,009 (under the age of 55) and $3,924 (age 55 and older) annually. Couples with children paid $9,539 in annual interest across all debt types, whereas couples without children paid $6,678.
 Single parents paid annual interest of $5,084 on mortgages, $2,477 on credit cards, $1,798 on student loans and $1,026 on vehicles. Single people under the age of 55 without children paid annual interest of $5,973 on mortgages, $2,094 on credit cards, $2,866 on student loans and $1,400 on vehicles.
 Households run by self-employed individuals paid annual interest of $10,430 on mortgages, $3,320 on credit cards, $2,461 on student loans and $2,220 on vehicles. Households run by employees paid annual interest of $7,155 on mortgages, $2,465 on credit cards, $2,708 on student loans and $1,677 on vehicles.