Last updated on October 31st, 2019
A lot of people are dealing with precarious financial situations. But what’s causing this? And how common is it? There are many factors playing into the high debt and low savings levels of consumers living in the United States.
How Much Debt Do People Have?
It probably isn’t surprising to hear that people in the U.S. have a lot of debt. The average person has about $38,000 in non-mortgage loans—a number that continues to rise.
A large portion of this comes from credit cards, which are generally considered one of the worst forms of debt.
But wait. What does it mean for debt to be bad? Isn’t it all like that?
While you might perceive all debts to be negative, some types of debt are certainly much worse than others.
Credit card debt is seen as one of the most harmful because it comes with high interest rates, and typically isn’t tied to an asset that holds or increases in value.
Some argue that a mortgage is good debt because you need to have a place to live, plus the loan itself tends to have low interest and the asset will (hopefully) grow in value over time.
How Can You Reduce Your Debt?
The dollar amount of your debt is a lot less important than how much you have relative to your income. For instance, $50,000 in debt would seem like a lot to most people. But that wouldn’t be terribly intimidating if you make three or four times that much.
Debt-to-income ratio is an important metric to consider. This is a measurement between how much you earn per month vs. how much you pay directly to debt. Most lenders won’t give you money for a mortgage if your debt-to-income is over 43 percent because it’s deemed too risky.
If you’re around the 40 percent range you’re likely struggling to meet your debt obligations. If you ever get to the point where even making minimum payments on your debts is a struggle—let alone actually chipping away at the interest—you may want to consider seeking outside assistance.
Many consumers have settled major debts for less after enrolling in the debt relief program from Freedom Financial Network. Others have used debt consolidation loans to reduce interest and simplify monthly payments.
Reducing debts is a key part of saving. Work on these so you can eventually set aside more for the future rather than having to throw it at interest payments each month.
How Much Are People Saving?
Since the typical American is carrying so much debt, it makes sense they don’t have a ton of saved money. Four in ten people don’t even have enough to handle a $400 emergency expense. When tough times hit many people need to turn to credit and debt in order to survive. And once that cycle begins, it’s hard to break out of it.
Having some money set aside for emergencies or other costs is important for your financial health. It’s wise to find any way possible to put a little bit aside each month in order to build a safety net.
How Can You Save More?
Budgeting is one of the first steps to being able to find ways to save more. You need to do this if you haven’t already. And even if you have a budget in place, it’s worth revisiting to see if it’s truly effective.
A budget allows you to see all the money that’s coming into and going out of your possession each month. Try to find places where you can cut back on expenses, such as unused subscriptions or other non-essential costs.
If simply cutting back isn’t enough, you might want to find a way to generate more income. Finding a part-time job to supplement your cash flow is one way to do this. You can also try to sell some of your old or rarely used items. This can instantly generate some substantial money to boost your savings.
Everyone needs to think about debt and savings if they want to be in a good financial state. Even if you’re someone who owes a lot and doesn’t have much in the bank, there are ways you can work toward improving your financial situation.
Andrea Schmidt is a staff writer for Wealthy Turtle. She’s a stay at home mom who loves to write about paying down her family’s debt, living on a budget, and exploring new side hustles to earn extra money.