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| The Basics | How does your debt compare?
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A snapshot of American debt shows a troubling picture. See how your mortgage statements, credit card balances and payment practices compare with other Americans' bills.
By Kim Khan
Polonius wouldnt have gotten very far in America today. He's the Shakespeare character in Hamlet who warned, neither a borrower, nor a lender be.
Modern society, as we know all too well, is overrun with both borrowers and lenders. But just how big is the typical family's debt? How fast is it growing? How does your mortgage compare to the Joneses next door? And how might consumer debt -- your debt -- affect the U.S. economy?
We decided to look at the most recent numbers and take a snapshot of household debt in the United States, circa 2004. What emerges is a picture that's both familiar and unsettling. Yes, consumer debt -- encompassing credit cards, mortgages, student loans and more -- is growing like a well-fed St. Bernard puppy. No, there's no sign that the growth will slow. Yes, some economists worry about the ill effects, but no, not many of them are sounding urgent alarms.
It's hard not to be worried when confronted with numbers such as these:
- About 43% of American families spend more than they earn each year.
- Average households carry some $8,000 in credit card debt.
- Personal bankruptcies have doubled in the past decade.
It's not clear exactly where the debt trend will take U.S. consumers or the U.S. economy. But it is clear that both are sailing in uncharted waters.
Consumers owe nearly $2 trillion
American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. Thats about $18,654 per household, a figure that doesnt include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.
The majority of consumer borrowing, about 63%, is represented by so-called "non-revolving" debt such as automobile loans. But "revolving" credit, which most typically involves credit cards, is an increasingly significant part of the equation. Revolving debt currently totals $735.3 billion; that's about 31% higher than it was only five years ago. The figure has more than doubled in a decade.
Among the key drivers of debt expansion in recent years:
- Unusually low interest rates.
- The rising popularity of Internet shopping, in which credit cards are the currency of choice.
- The hot housing market, which has encouraged buyers to stretch for new homes.
- The aggressive extension of credit to consumers with weak credit scores.
Credit for consumers with fair or poor credit ratings typically comes with higher fees and interest rates, says Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counselors. And while that access to capital helps some disenfranchised consumers, the availability of risk-based credit has also greatly increased the amount of debt per household and could lead to more financial problems for families, Sermons-Ward says.
There is a tendency for consumers to take advantage of credit offers without really thinking through the consequences of overspending, she says.
Just one word: plastics
The average amount of credit card debt in households with more than one card is now more than $8,000, according to CardWeb.com. Thats 167% more than the $3,000 average for households in 1990.
Continued on Page 2
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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