Raise your hand if you have more than four credit cards, a car payment, and mortgage, and student loans. Keep your hand up if you’re afraid to look at your credit card or student loan statements because you don’t want to know how high that balance is. Now raise your hand if you feel like the idea that you’ll ever be out of debt is impossible.
If you raised your hand for any of that, you’re not alone. About 80 percent of Americans are in debt, and many of us don’t know how to get out of it. Read on to learn more about why so many of us are in debt and why it’s so hard to pay that debt off.
How Bad Is the Debt Crisis?
Before we get into all the reasons Americans have so much debt, let’s answer an important question: How much debt do we have? As of the second quarter of 2019, American consumers had racked up nearly $14 trillion in debt. In the second quarter of 2019 alone, American debt grew by $219 billion.
To put this in perspective, the average American household typically carries about $138,000 in debt. And while your mortgage does account for a good portion of this, many estimates show that Americans carry a lot of debt outside of their mortgages. Some estimates put that number as high as $29,000 in debt, excluding mortgages.
Leading Sources of Debt
There are four primary sources of American debt: home mortgages, car loans, student loans, and credit card debt. Of that $14 trillion dollar debt we mentioned, a little more than $9 trillion can be credited to mortgages. Another $1.3 trillion comes from car loans, which have had low-interest rates since 2008.
Student loans account for a historic $1.48 trillion of American consumer debt. This means the average borrower owes about $35,000 in student loans. And finally, credit card debt accounts for the last $1 trillion of American debt, with the average consumer owing about $6,000 across four different credit cards.
Keeping up Appearances
So why do we have all this debt that we don’t know how to pay off? One of the biggest reasons is that we want to keep up appearances. In a world where our every move is documented on Instagram, it’s easy for your public image to become the most important thing, regardless of your actual financial status.
The problem is that almost no one has the life they show on Instagram. Yes, the person you admire on social media may live in a gorgeous house and take vacations to dream destinations every year. But meanwhile, you’re both drowning in debt, too afraid of judgment to let the illusion slip.
There’s Never Enough Money
Think back to when you were first starting your career and what your financial situation was like then. If you’re like most of us, you rented the nicest apartment you could manage to pay for and never felt like you had any money.
Now think about your present life and what your financial situation is like. You probably live in the nicest house you can afford to pay for. And even though you make far more than you did when you were younger, you likely still feel like you never have any money.
The truth is that most of us live on the outside edge of our means – if we can afford a nicer house, car, or dinner, we get one. This means that no matter how much money we make, it will never feel like there’s enough money, and that leads us into debt.
Unwilling to Sacrifice
Once you’ve got debt, getting out of debt is hard. It means sacrificing things you love: vacations, trips to the movies or out to eat, a new outfit, or a new car. Sometimes it means telling your kids they can’t participate in some extracurricular activity or that they can’t get the pet they want so badly because it’s too expensive.
Many people are not willing to make the sacrifices needed to get out of debt. If you want to pay off that debt, that money has to come out of some part of your budget, and that means discomfort and self-denial. For many people, it’s easier simply to continue spending money they don’t have and leave the debt until a later date.
No Light at the End of the Tunnel
The trouble with leaving your debt until a later date is that the longer you leave it, the uglier it becomes. Charges pile up, interest accrues, and before you know it, you’re staring down the barrel of a five-figure credit card statement with no idea how to pay it off. It becomes even harder to face, turning your debt into a vicious cycle.
For many Americans, the idea of ever paying off their debt seems impossible. It’s just too big a number, and they don’t know how they’ll be able to get by and pay off their debt in their lifetimes. And because it feels like such a hopeless cause, many prefer not to tackle it at all, simply enjoying their lives and trying to ignore the mountain of debt looming over them.
The other major fallacy in American spending habits is the idea that we have to have certain items. We need a new outfit for our job interview, a new kitchen appliance, a new toy for our child, a new TV to host the Super Bowl party. We are addicted to stuff, and the truth is that it’s crushing us.
Even if we get a fleeting sense of joy from buying a new item, that rush quickly fades. Then we’re left with another item that we have to find a spot for in our house and the credit card charge for the new toy. We keep buying into the lie that if we get this one thing, we’ll be happy, and it’s driving up our debt.
Budgeting Isn’t a Priority
So how do we get away from needless spending and find the money we need to pay off our debt? Why, by keeping a budget, of course! A budget tells us how much we have to spend on all the true essentials in our life, how much we have left over, and how we can best spend that leftover money.
But for most Americans, budgeting simply isn’t a priority, and it’s easy to understand why. When our paychecks come in, we’re rushing to the store to restock on groceries, buying the kids new shoes since they’ve outgrown their last pair, and paying bills. We don’t have time to sit down and make a budget, but without them, our money vanishes and we’re left with thousands in debt.
Spousal Communication Issues
How many times have you come home to discover your partner has spent money on something without talking to you about it? In the case of smaller items – additional grocery items or small hobby purchases – this may not be a big deal. But if your partner comes home with a new flatscreen, it can wreck your debt plans for years.
Many times, Americans have trouble managing their debt because of spousal communication issues. In order for you to keep an effective budget, both parties have to understand the importance of following that budget. If one of you doesn’t hold that as a priority, it’s going to make it harder to get your debt paid off.
Not Doing the Work
Even if you and your partner sit down and agree on a budget, your work has only just begun. Every time you go to the store, eat at a restaurant, or see a movie, you have to log that in your budget. There are apps that can help you with this, but it still takes some feet-on-the-ground work to make your budget effective.
Most Americans aren’t willing to do the work that comes with following a budget. It’s easy to think, “Oh, this is only $15, it won’t make that much difference in my budget.” But $15 here and $20 there can start to add up, and before you know it, all the money you’d allocated to pay on your credit card debt is gone.
One of the biggest threats to a budget is the impulse buying phenomenon. We’re in line at the grocery store and our child sees a candy bar or we find an extra little doodad that we want. Sometimes, we have a bad day and we decide we’re going to splurge on a purchase we’ve been wanting to make ourselves feel better.
These impulse buys are one of the quickest ways to wreck a budget. Even small purchases throw a budget out of line, and big purchases can throw you off balance for a month or more. If you want to pay off debt, you have to be able to fight those impulse buys and stick to only the items you truly need.
Keeping Credit Cards
On the subject of credit cards, these are one of the biggest reasons Americans are in debt. Many of us think there are good reasons to have credit cards apart from being able to spend money we don’t have. They help us build our credit, we say, and they’re good to have around in case of a “rainy day.”
But the truth is that if we have credit cards, we’re spending money on them. There are other ways to build good credit, and if you have a good enough savings fund, you won’t need a rainy day credit card. The smart thing to do is pay off your accounts as quickly as you can and then cut those cards up.
“But wait,” we hear you saying, “I’m thousands of dollars in debt; how can I be expected to have thousands of dollars in a savings account?” If this sounds familiar, you aren’t alone; more than half of Americans have less than $1,000 in savings. And it’s a tricky problem – how do you pay off debt if you don’t have a savings fund for emergencies?
Life happens, and there are often unexpected expenses that arise. If you get slammed with a medical bill, for instance, you could find yourself trying to come up with thousands of dollars that you weren’t prepared to spend. If you don’t have emergency savings for these situations, you may feel like you have no choice but to reach for your credit card.
High Cost of College
Of course, one of the biggest sources of American debt comes from student loans. The class of 2019 graduated with an average of $28,565 in student loans, and those numbers have been on the rise for years. When you’re starting your career that far in the hole, it can be hard to dig your way back out.
Many young Americans just entering the workforce find themselves paying more for their student loans than for their housing. Paying that debt down can take decades, and meanwhile, it’s accruing interest.
Lack of Understanding
Finally, one of the biggest reasons Americans still have so much debt is simply that they don’t know how to pay it off. When you’re confronted with thousands of dollars in debt, how do you begin to pay that down? How do you make an effective budget and start formulating a plan to become debt-free?
Luckily, there are a lot more resources online to help people figure out how to tackle their debt. But in many cases, a simple lack of understanding can leave people financially crippled for decades.
Learn What to Do If You Have Too Much Debt
The debt crisis in America has reached all new levels, and with the financial upheaval caused by COVID-19, the situation is unlikely to get better anytime soon. Understanding why so many of us are in debt can help us start to see the truth of our financial situation and figure out a way out of it. The key is to make and stick to a budget and avoid buying into the lie that we always need more stuff.
If you’d like to discover the smartest way to pay off your debt, check out the rest of our site at DebtHunch. We find the best debt consolidation solutions for people just like you instantly. Check out your offers today and start making your way towards a debt-free life.