Are Too Many Americans in Debt?

The media fill the airwaves  with ominous stories about how so many Americans carry high credit card balances and live way beyond their means.  The news anchors warn of an ominous future for America with everyone filing bankruptcy and owing credit card companies billions of dollars, barely being able to scrape out a decent living with the mountain of debt hanging over each and every household.  The media has exaggerated the debt story so much that even people in other countries believe this to be true of Americans and discuss it regularly in their own media -- they warn their own citizens not to become fat like Americans and not to live on credit and go into debt like Americans.

However, if one looks at the statistics gathered by reputable organizations, such as The Federal Reserve Board, the myth that the majority of Americans are over their heads in debt is simply not true.  Contrary to popular believe, a little more than half, or about 56% of Americans, do not carry much debt at all and typically pay off their credit card balances in full each month.  Only a very small percentage of the remaining 44% of Americans carry too much debt. The truth is that only a tiny percentage of Americans have too much debt.  More than 35% of Americans owe their homes free and clear.

So how did the media latch on to such a false story in the first place?  Because of the Great Recession of 2008.  The media love to paint America as a nation drowning in misery and debt, and, when offering quantitative data, they will skew the average upwards.  For example, the average debt of three Americans who owe $50,000, $800 and $1,000 respectively is $17,266.  If you heard on the evening news that someone had conducted a survey and found that the average American owes $17,266, you would believe we were a nation of debtors too, wouldn't you?   This isn't true.  The majority of Americans do not have too much debt.  It is just a percentage of Americans who are drowning in debt and living beyond their means, probably no more than 25 percent.

Instead of believing the media hype about Americans and debt, one should put much more stock in a reputable organizations that conducts extensive consumer surveys and gather financial data from many sources.  One such organization is The Federal Reserve Board.  If you look at their statistics compiled over the years, you will find that the stories about Americans and debt are mostly false.  Read the facts below and you will be pleasantly surprised to find out that the overwhelming majority of Americans have their finances in order and would be more accurately described as frugal, carrying little or no debt when compared to their household incomes and total net worth:

Fact 1:  Most Americans (55%) owe nothing to credit card companies.
Fact 2:  Only 1 out of 20 Americans carries too much credit card debt.
Fact 3:  About 25% of Americans do not have a single credit card at all.
Fact 4:  About 56% of those who use credit cards pay the balances in full each month and this percentage is expected to increase dramatically over the coming years as people become smarter about carrying credit card debt.
Fact 5:  Only 6% of the Americans who do use credit cards are carrying too much credit card debt, but only about 1% of these debtors have credit card balances over $20,000.

Of course, the Great Recession of 2008 hurt a lot of people and left a lot of people out of work and struggling financially.  But the recession is an abherration.  And there are alarming statistics about those Americans who are swimming in debt that happen to be true.  For example, the personal bankruptcy rate increased to a record high in 2009.  But don't believe the media hype that most of these bankruptcies were the result of wild, reckless living.  Most of these bankruptcies were filed by people who always paid their bills and tried to do the right thing.  They fell into financial trouble suddenly because the recession or because of an unexpected illness that required hospitalization.  Both insured and uninsured Americans often do not have enough to pay the outrageous cost of healthcare in this country. 

There are many Americans who are carrying too much debt, but their debt problems could be easily solved by more prudent budgeting and conservatism.  Are you one of those who carry too much debt?  Find out by calculating your debt-to-income ratio.   You can get started today and in a few years, you could have your debt under control and on your way to building wealth.
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