American Debt and What You Owe
American Debt and What You Owe
Americans are in debt. While not every adult in the U.S. has credit cards, loans, or other types of debt to pay off, the number of people and amount of debt is growing. If you are in debt, you are not alone in this. Look at the common types of debt, how much Americans owe, and what you can do to turn your credit score around.
Student Loan Debt
Financing a post-secondary education is a major contributing factor to the growing debt crisis. Nearly one in every four adults has student loans to pay, with a collective student loan debt for the entire country of almost $1.5 trillion.
When the cost of a college education puts the borrower in a place to earn significantly more than they would without a degree, debt does not become a problem. But when the borrower either cannot find a job or ends up in a low-paying position, paying back student loans — especially those with hefty interest rates — is not always possible.
While the overall national default rate on student loans has dropped somewhat statistically, failure to pay is still common. According to the U.S. Department of Education, of the 4.9 million borrowers who borrowed between Oct. 1, 2014, and Sept. 30, 2017, and whose loans went into repayment, more than 10 percent defaulted. That is 531,653 people who could not or would not pay their loans.
What happens if you default on your student loans? Along with crushing your credit score, failure to repay can result in high penalties, fees, and interest rates.
Credit Card Debt
Credit cards can save the day when you do not have cash to pay. Whether you charge a few big-ticket items such as major appliances or furniture, use your cards to make reoccurring payments, or buy smaller items that eventually add up, this type of debt can also negatively affect your credit rating.
Even though most of the American debt is non-revolving (such as student or car loans), the nation’s credit card debt reaches over one trillion dollars.
The average credit card debt ranges from $4,000 to $8,000. Americans who have the lowest overall net worth also tend to have the most credit card debt.
This type of debt can lower your credit score, raise interest rates, and leave you unable to secure other loans. If you cannot pay off your credit cards, you are likely looking at heavy penalties or fees and the inability to get a mortgage, auto loan, or another credit card in the future. Paying down your cards and raising your credit score is a necessity if you are one of the many Americans severely in credit debt.
High-Interest Rate Debt
Mortgages, car loans, credit cards, and anything else that comes with an interest rate can quickly add to overall debt. High-interest rates can make paying your bills on time challenging. Failure to pay on time can lead to higher interest rates and a lower credit score.
Even though no one wants a high-interest rate loan or card, you may feel that you have no choice. If you are stuck in a high-interest cycle, check your credit score and history. Poor credit scores are typically between 620 and 659. Bad scores fall under 620.
If your rating is in one of these categories, improving it will make getting a loan or card easier — especially one that comes with a lower interest rate. A lower interest rate reduces monthly payments, making your ability to pay on time and in full easier.
Do you need help improving your credit score? Contact BoostMyScore today for more information.