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Credit Card Debt Is Rising, and Housing Costs Aren’t Helping

housing-debtAmerican credit card debt continued to creep higher in 2017, with the average American household now owing a balance of $15,654, according to a new analysis by NerdWallet. For a bit of context, NerdWallet’s study also found that the average American household holding any debt at all owed a total of $131,431—including mortgages. Furthermore, Americans with a mortgage owe an average of $173,995 toward that mortgage, according to NerdWallet’s study.

Overall, U.S. consumers owe $8.74 trillion on their mortgages, and $905 billion towards credit card debt.

NerdWallet’s study finds that the median annual household income has grown 20 percent over the past decade, which is ahead of the cost of living increase during the same period (18 percent). That’s good news, on the face of it. However, specific cost increases have outpaced income growth during that decade, including housing (20 percent increase), medical expenses (34 percent), food and beverages (22 percent), and “other” expense (30 percent). According to a recent FHFA report, home prices rose 6.5 percent between Q3 2016 and Q3 2017. When these costs mount, average Americans often turn to credit cards to try and make ends meet.  

Unsurprisingly, Americans with credit card debt said they view trying to keep up with those monthly payments as an impediment to other financial goals. In a NerdWallet survey, 57 percent of those surveyed said they would save money for future emergencies if not for their credit card debt. Fifty percent said they would save it for some future goal—such as buying a home—while 33 percent said they would use the money toward paying off other debts.

Interestingly, however, NerdWallet’s study found that homeowners are, on average, paying quite a bit more on credit card interest annually than renters are. The average homeowner is paying around $1,001 in credit card interest per year, which is nearly twice the renter average of $537.

Another interesting finding: self-employment also ratchets up the average total credit card debt for a household. According to NerdWallet, “U.S. households led by self-employed individuals pay $1,194 in credit card interest each year, compared with $843 for those who work for someone else.” A Fannie Mae survey revealed that one-fifth of American adults have provided a service through the gig economy, and many of those surveyed say they do want to buy a home at some point. Along with other factors such as medical debt, the increased average credit card debt for those who are self-employed or gig workers could prove one major obstacle toward owning a home for this segment of the population.

One good piece of news: 41 percent of those surveyed reported unnecessary purchases as a contributing factor toward credit card debt. If these purchases are recognized by the consumer as unnecessary, eliminating or decreasing those expenditures would be a good first approach to decreasing that household’s credit card debt. However, 33 percent of those surveyed reported using credit cards to help supplement regular income in order to afford necessities—and “necessities” often involves things from those categories that are rising faster than income growth, such as housing and medical expenditures. It remains a tricky balance for struggling families to pay their bills and still be able to save for the future—or for a home.

You can read NerdWallet’s full 2017 American Household Credit Card Debt Study by clicking here.

About Author: David Wharton

David Wharton, Editor-in-Chief at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has nearly 20 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. He can be reached at David.Wharton@thefivestar.com.

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