Doing Away with Debt

Natalie Merrill
November 9, 2016

While it seems many of the individuals we encounter on a daily basis live fairly comfortable lives, there’s one burden a large number of Americans have that they don’t post about on Instagram, Snapchat or Facebook: debt.

Whether it’s student loan, mortgage, credit card, automobile or another form of debt, the truth is that a countless number of families and individuals owe money for amounts they’ve borrowed in one way or another. In fact, the “2015 American Household Credit Card Debt Study” revealed that the average American household with debt owes more than $130,000 — nearly $16,000 of that being credit card debt alone.[1]i

So why is it that there’s such a tremendous amount of credit card debt continuing to stack its way up on the debt pile? Think about it: Have you ever received a notification in the mail informing you that you are pre-approved for a credit card? It’s that available credit that is so appealing to people — Scott Fulford and Scott Schuh noted in a Federal Reserve Bank of Boston report that a 10-percent increase in a person’s credit is followed by a 1.3-percent increase in debt within a quarter and a 9.99-percent increase in debt for the long term.[2]ii People are taking advantage of the opportunities they’re being given simply because they’re there, allowing the amounts they borrow to be driven by their credit limits. Even though Americans borrow more in economically positive times and less during recessions, the strongest determinant appears to be the credit limits individuals are given in influencing the amounts they will take.

Revolving debt — meaning you don’t need to reapply for the loan you take out (credit card debt is an example of revolving debt) — has continued to increase in recent years, totaling more than 970 billion for American consumers as of August of this year.[3]iii Once consumers begin using credit cards, it becomes more difficult to break the habit of something they’ve likely been relying on since they were in their 20s, and many of these individuals carry over this debt from month to month.

A problem that arises from the accumulating debt is that Americans have more debt than income earned, and the debt repayments end up being a lot higher than the amount borrowed because of the high interest rates. [4] iv The average American household income remains in the $50,000s, so people are not making enough to combat the revolving debt they accumulate on top of all of the other payments they must regularly make (e.g., mortgage or rent payments, car payments, student loan payments, electricity and cable/Internet payments, etc.) and the necessities they must purchase (e.g., food and other groceries).

If you have a credit card you use regularly, the best practice is to try to pay it off at the end of each month rather than only paying the minimum required amount per statement. Doing so helps eliminate the likelihood that you will end up paying significantly more than you originally borrowed as a result of the interest rate charges that add on to the amount you owe. The more you do to reduce the amount of revolving debt you have, the better, as this will help you be able to afford more of the necessities and desires that are more important to you with the money you are no longer paying as part of credit card debt.


[1]i Matthew Frankel, “The Average American Household Owes $90,336.” Time Money, May 2016.
[2]ii Scott Fulfor and Scott Schuh, “Consumer Revolving Credit and Debt over the Life Cycle and Business Cycle.” Federal Reserve Bank of Boston: Research Department Working Papers, 2015.
[3]iii “Consumer Credit — G.19.” Federal Reserve, August 2016.
[4]iv S. Kumar, “3 reasons the average American may be worse off than Greece.” Fortune, July 2015.


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