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Optimistic outlook -

After enduring a grueling period of economic hardship, worsened by the pandemic and its cascading effects, 2024 seemed poised to be the year Americans would finally reclaim their financial footing.

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Wage growth - Recent data from the Bureau of Labor Statistics shows that wage growth has outpaced inflation for 18 consecutive months. Experts attribute this trend to a stronger job market, which is currently experiencing its third-longest expansion on record in the US.

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Spending habits - This perception of stability appears to have shaped American consumer habits. Consumer spending has persisted at robust levels, even in the face of elevated inflation and interest rates.

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Not enough -

Despite these positive economic indicators, many Americans are still struggling to recover from the impact of high inflation, when their wages failed to keep up for 25 consecutive months. Currently, Americans continue to accumulate record levels of debt.

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American household debt -

On average, Americans owe $104,215 in debt, encompassing mortgages, home equity lines of credit, auto loans, credit card debt, student loan debt, and other personal loans.

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New record -

Total US household debt hit a new record of $17.94 trillion as of September 30, according to the New York Fed's Quarterly Report on Household Debt and Credit.

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Debt categories -

Experian's recent data provides a detailed breakdown of average debt by category. In the following slides, we will explore the top five categories in which Americans amass the most debt.

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5. Home equity lines of credit (HELOCs) -

Often seen as a flexible and cost-effective financing option for homeowners, HELOCs accounted for $376 billion of household debt and 17.8% of all home-based loans in the third quarter of 2024, a nearly fourfold increase from early 2021.

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4. Credit card debt -

Americans currently owe a record $1.15 trillion in credit card debt. Balances soared by $24 billion in the third quarter of 2024, representing an 8.1% year-over-year growth.

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3. Auto loan -

Auto loans occupy the third position, adding $1.61 trillion to the debt burden of American households.

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2. Student loan -

Student loans constitute the second-largest debt category among those listed in the data, imposing a financial burden of $1.6 trillion on Americans.

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1. Mortgage debt -

Mortgage debt is the largest for most Americans, exceeding other debts significantly. As of the first quarter of 2024, households had accumulated a staggering $12.44 trillion in mortgage debt.

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Average debt by age -

Debt typically peaks around middle age. Americans tend to pay down debt before retirement and maintain low balances afterward, especially those over 70. Click on to see average debt by age group.

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5. Gen Z (18-26) -

Younger generations, with fewer responsibilities and less buying power, have accumulated the least debt, averaging $29,820 according to the latest data.

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4. Silent Generation (78+) -

Similar to Gen Z, those born between 1928 and 1945 typically have lower debt balances, which can likely be attributable to the fact that neither group is currently experiencing the peak of their midlife responsibilities. They also have fewer credit cards on average and maintain a lower average credit utilization rate.

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3. Baby Boomers (58-77) -

Baby Boomers are still carrying a significant debt load, including student loans. They also have the second-highest credit card balance ($6,642) of any generation, right behind Gen X.

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2. Millennials (27-42) -

Millennials are struggling with a growing debt burden, fueled by the costs of homeownership, family life, and persistent student loan debt. While mortgages are their biggest debt, they also owe an average of $27,251 in non-mortgage debt, including credit cards, student loans, and auto loans.

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1. Gen X (43-57) -

Generation X carries the highest average credit card debt among the generations analyzed, and they also have the highest average student loan balance. Their total average debt amounted to $157,556. As of October 2024, a quarter of Americans aged 46 to 55 reported skipping some debt or monthly bill payments.

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Average debt by state -

Geographic location significantly impacts debt levels. States with higher housing costs, like California, tend to have higher mortgage balances. Conversely, states with lower costs of living, like Texas and Ohio, tend to have lower overall debt. 

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Average debt by state -

This section of the data excludes medical debt, which is a significant factor in Southern states that didn't expand Medicaid, leading to lower credit scores in these regions. Click on to view the top five states with the highest average household debt.

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5. Utah -

Utah experienced one of the most rapid increases in household debt from the second to the third quarter of 2024. Financial experts attribute this trend to the elevated cost of living in the state, particularly housing expenses.

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4. Hawaii -

As of 2024, Hawaiians carried a mortgage debt burden of approximately $73.1 billion, according to the Hawaiian government’s statistics. In the first quarter of 2024, Hawaii recorded the highest household debt-to-income ratio of 2.2.

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3. California -

California is one of the most expensive places to live in the US. The average household spends $53,171 a year on basics like housing, healthcare, and food. With a significant gap between the rich and poor, many Californians are struggling to make ends meet.

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2. Colorado -

Although Colorado boasts higher average wages, as reported by Michael Benninger, lead banking editor at Forbes Advisor, the state's households bear the heaviest debt-to-income ratio in the US at 99.85%.

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1. Washington -

Similar to California, Washington is characterized by a high cost of living. Despite this, Washingtonians, benefiting from higher incomes, are able to rapidly pay off credit card debt. The total average household debt in Washington amounts to $180,462, according to Experian data.

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Paying off debt -

High debt, especially high interest debt, can rapidly deplete your savings and damage your credit score. Getting your finances organized might seem overwhelming, but don't panic and start creating a debt management plan. Click on for tips!

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Be strategic -

First thing's first: figure out how much you owe and what interest rates you're paying. Then, choose a strategy to tackle your debt. The debt snowball method is like knocking down dominoes, starting with the smallest debt. The debt avalanche method targets the biggest debts first. Pick the strategy that best suits your situation to accelerate debt repayment.

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Consolidating or refinancing -

Debt consolidation can help manage smaller, high-interest debts like credit cards. You can consolidate with a personal loan or a balance transfer credit card. Both options should offer lower interest rates than your current debts.

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Professional support -

If you need help managing debt, consider credit counseling or debt relief programs. Credit counseling can help you create a budget and negotiate with creditors. For severe debt problems, debt settlement can reduce your overall debt, but it can hurt your credit score. It's important to weigh the pros and cons and choose the option that best fits your situation.

Sources: (Business Insider) (CNN) (CNBC) (MoneyWise) (Visual Capitalist) 

See also: US cities where you can buy a house for less than US$100K

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