2016 American Household Credit Card Debt Study
Debt is as American as apple pie: The average household has $127,977 in debt. For households that carry credit card debt, it costs them about $1,300 a year in interest. It's time to take action.
By Erin El Issa
2016 American Household Credit Card Debt Study
By Erin El Issa
Debt is a way of life for Americans, with overall U.S. household debt increasing by 11% in the past decade. Today, the average household with credit card debt has balances totaling $15,391, and the average household with any kind of debt owes $127,977, including mortgages.
Taking on debt to cover the gap between income and expenses is a short-term fix with costly long-term results.
When the next recession strikes, it’s unlikely to be the result of poorly managed credit card debt.
[Fed] rates are expected to continue to rise, and each change adds up and increases your debt burden.
Methodology
NerdWallet 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.”
- Board of Governors of the Federal Reserve System. “Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks.”
- Bureau of Labor Statistics. “Consumer Price Index.”
- Experian. “Consumer Segmentation Identify and Manage Customers with Credit3D.”
- Federal Reserve Bank of New York. “The Center for Microeconomic Data.”
- Inside Higher Ed. “Borrowing Falls as Prices Keep Climbing.” Oct. 26, 2016.
- Inside Higher Ed. “For-Profit College Sector Continues to Shrink.” July 15, 2016.
- National Student Clearinghouse Research Center. “Current Term Enrollment Estimates Fall 2015.”
- The New York Times. “Fed Signals It’s on Track to Raise Interest Rates in December.” Nov. 2, 2016.
- U.S. Census Bureau. “Families and Living Arrangements.”
- U.S. Inflation Calculator. “Current U.S. Inflation Rates: 2006-2016.”
- The Wall Street Journal. “The U.S. Housing Market in 9 Charts.” June 23, 2016.
Footnotes
[1] CPIs, or consumer price indexes, measure the price changes for a set 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 185.1 to 241.002 between 2003 and 2016. Medical care grew from 299.8 to 469.815 in this time period, and food and beverage increased from 181.5 to 247.56. To compare the increase in the CPI categories with income growth since 2003, we projected a 2016 median household income based on the rate of growth over the past 13 years. Our projections show median incomes of $43,318 and $56,578 in 2003 and 2016, respectively.
[2] According to our projections based on data from the Federal Reserve Bank of New York, total debt in the U.S. will hit $12.5 trillion by the end of 2016, surpassing the total debt of $12.37 trillion in December 2007.
[3] According to Experian’s proprietary algorithm to calculate proxy interest rates, revolving balances and other attributes, the revolving credit card debt as of June 2016 is $320 billion. We projected a U.S. population of 125.27 million households in June 2016 based on U.S. Census Bureau numbers. We projected that 37.1% of U.S. households are indebted as of 2016, based on 2013 Survey of Consumer Finances numbers. NerdWallet’s internal data show an average credit card APR of 18.76%.
[4] According to the Bureau of Labor Statistics, the housing CPI grew from 185.5 to 245.685 from 2003 to 2016.
[5] To compare the increase in household debt with income growth since 2003, we projected a 2016 median household income based on the rate of growth over the past 13 years. Our projections show median incomes of $50,303 and $56,578 in 2008 and 2016, respectively. Adjusted average household debt numbers are $118,758 and $99,365 in 2008 and 2016, respectively.
[6] According to the Bureau of Labor Statistics, the education CPI grew from 110.1 to 138.712 from 2003 to 2016.
[7] According to the Federal Reserve Bank of New York, student loan debt was $1.28 trillion in September 2016 and $447 billion in September 2006.
[8] According to the Federal Reserve Bank of New York, student loan debt was $1.2 trillion in September 2015.
[9] According to the National Student Clearinghouse Research Center, enrollment for all degree-granting institutions decreased by 1.7% in fall 2015, compared with the previous year. Four-year for-profit enrollment decreased by 13.7% in that same period.
[10] Based on data from the Federal Reserve Bank of New York, we projected that total credit card debt in the U.S. will hit $842 billion by the end of 2019, surpassing the total credit card debt of $839 billion in December 2007.
[11] According to the U.S. Inflation Calculator, inflation rates in 2016 are down to 1.5%, compared with 2.5% and 4.1% in 2006 and 2007, respectively.
[12] According to the Board of Governors of the Federal Reserve System, delinquencies are flat — or even declining, depending on which credit products you’re looking at. Before and during the recession, they were increasing steadily.
[13] According to The Wall Street Journal, the housing market is trending up, though it has yet to recover from the housing crash between 2006 and 2009.
[14] We used consumer-reported data from the Survey of Consumer Finances and revolving credit card balance data from Experian to estimate revolving debt based on household income. We used the estimated average credit card APR of 18.76% from our internal data to calculate the amount of interest each household would pay. Households that made less than $21,432 owed $3,611 in credit card debt and paid annual interest of $677 on credit cards. Households that made more than $157,479 owed $13,406 in credit card debt and paid annual interest of $2,515.
[15] We used consumer-reported data from the Survey of Consumer Finances and revolving credit card balance data from Experian to estimate revolving debt based on the employment status of the head of household. We used the estimated average credit card APR of 18.76% from our internal data to calculate the amount of interest each household would pay. Households headed by an employee working for someone else owed $6,453 in credit card debt and paid annual interest of $1,211 on credit cards. Households led by someone self-employed owed $8,693 in credit card debt and paid annual interest of $1,631.
[16]The Fed voted Dec. 14, 2016, to increase interest rates by 0.25 percentage points.
[17] Adding a potential Fed rate increase of 0.25 percentage point to the average credit card APR of 18.76%, the average household would owe $1,309 in credit card interest per year.