The article tells you the general numbers as well as a notable picture from every state and the average debt per person in the state. The most interesting stats to me in the article are the fact that over the last 10 years, more people are paying off their balance each month, but those people who don’t are carrying more debt. I think comparing yourself to the average has some value, I guess, but not much. Each person’s situation is different, so you have to align what you feel is a safe debt value to your situation.
I once read a great blog post, I’ll try to find it, but I could not as of this writing, that talked about debt. In this case, the author was talking about the national debt, but the point is just as valid for a person as it is for the nation. Absolute debt, or average as in the case of this article, does not have a lot of meaning in and of itself. The debt ratio is what matters. No bank is going to give a loan to someone who can’t afford to pay it back.
Let’s think of a scenario, would you want to take a loan out for $100,000 when you only make $10,000 a year. When I was in the military, I earned only $21,000 in my last year of service. I would not take out a loan for $100,000 in those days. Interest rates were higher then as well. Today, I make much more than what I did then from my full-time job, and so my current home loan was more than that.
There is also the idea of debts and debts. Not all debt is the same. Secured debts like home loans or car loans get better rates because there is a think the bank can sell if you can’t pay the loan. Credit card debt is unsecured and thus a different thing. Those rates are higher, and well, it’s better not to have that debt.
Now while I do not carry credit card debt now, I did carry way too much when I was earning around $50,000 a year and had at one point just about $10,000 in debt. I was lucky as it was easy to get a 0% rate then on balance transfers, so I didn’t pay much interest, and I managed to pay it off before those deals went away.
I still use credit cards, but now I take advantage of the cash back options like most people do, and am careful to not make the same mistakes I used to make. A friend in my military days had a great idea. He had a separate savings account set to pay is credit card with. That savings account was his credit limit. In truth, obviously, the card issuer had a high limit, but my friend and his wife had the discipline to control their spending by always paying off the debt on the credit card, and then make payments to their savings account instead of to the card. This way they got to earn interest, and not lose it to the card issuer. It really is a great idea. It’s one I use, in effect, today.
Anyway, if you are interested in the numbers from the article, they said that 40% of US households carry credit card debt. of those, who don’t pay off the balance each month, the average debt is $9,333, which is where I was myself when I didn’t pay it off each month. Interesting coincidence.
Credit cards are great for emergencies, but it’s always best to pay them off each month. In a rising interest rate environment that we are in now, that becomes even more important.