What is the average debt-to-income ratio in America?
The Federal Reserve tracks the nation's household debt payments as a percentage of disposable income. The most recent debt payment-to-income ratio, from the third quarter of 2023, is 9.8%. That means the average American spends nearly 10% of their monthly income on debt payments.
35% or less is generally viewed as favorable, and your debt is manageable. You likely have money remaining after paying monthly bills. 36% to 49% means your DTI ratio is adequate, but you have room for improvement. Lenders might ask for other eligibility requirements.
The average debt in America is $104,215 across mortgages, auto loans, student loans, and credit cards. Debt peaks between ages 40 and 49 among consumers with excellent credit scores. Washington has the highest average debt at $180,462, and West Virginia has the lowest at $64,320.
Around 23% of Americans are debt free, according to the most recent data available from the Federal Reserve. That figure factors in every type of debt, from credit card balances and student loans to mortgages, car loans and more.
Research from financial services company Northwestern Mutual found that excluding mortgages, the average personal debt per individual sat at $21,800 in 2023, significantly lower than the $29,800 recorded in 2019.
Key takeaways
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
So, by tripling the $15,600 annual total, you'll find that you'd need to earn at least $46,800 a year to afford the monthly payments on a $200,000 home. This estimate however, does not include the 20 percent down payment you would need: On a $200K home, that's $40,000 that needs to be paid in full, upfront.
Fewer than one quarter of American households live debt-free. Learning ways to tackle debt can help you get a handle on your finances.
What is the average credit card debt? The average American household owes $7,951 in credit card debt a year, according to 2022 data from the Federal Reserve Bank of New York and the U.S. Census Bureau.
| Generation | Average Credit Card Debt |
|---|---|
| Millennials | $6,521 |
| Generation X | $9,123 |
| Baby boomers | $6,642 |
| Silent generation | $3,412 |
How many Americans live paycheck to paycheck?
How Many Americans Are Living Paycheck to Paycheck? A 2023 survey conducted by Payroll.org highlighted that 78% of Americans live paycheck to paycheck, a 6% increase from the previous year. In other words, more than three-quarters of Americans struggle to save or invest after paying for their monthly expenses.
If you have a DTI ratio higher than 43%, you probably are carrying too much debt because you are less likely to qualify for a mortgage loan. So if your monthly debt payment is $2,250 with a gross monthly income of $5,000, your DTI ratio would be 45%, which indicates you have a relatively high amount of debt.
The Standard Route is what credit companies and lenders recommend. If this is the graduate's choice, he or she will be debt free around the age of 58. It will take a total of 36 years to complete. It's a whole lot of time but it's the standard for a lot of people.
That makes sense, of course, as older Americans have had a longer time to make payments. But with nearly two-thirds of retirement-age Americans having paid off their mortgages, it means that the average age they have gotten rid of that debt is likely in their early 60s.
Men have 20% more personal loan debt than women. Men have 16.3% more auto loan debt than women. Men have 9.7% more mortgage debt than women. Women have 2.7% more student loan debt than men.
Similarly, states along the Pacific Coast—where home values skyrocketed during the pandemic—have some of the lowest rates of free-and-clear homeownership among the working-age population. California (22.7%), Washington (22.8%), and Oregon (22.9%) sit at 45th, 44th, and 43rd out of all 50 states, respectively.
Lenders, including anyone who might give you a mortgage or an auto loan, use DTI as a measure of creditworthiness. DTI is one factor that can help lenders decide whether you can repay the money you have borrowed or take on more debt. A good debt-to-income ratio is below 43%, and many lenders prefer 36% or below.
$20,000 is a lot of credit card debt and it sounds like you're having trouble making progress,” says Rossman.
Personal debt can be considered to be unmanageable when the level of required repayments cannot be met through normal income streams. This would usually occur over a sustained period of time, causing overall debt levels to increase to a level beyond which somebody is able to pay.
The 30% rule for home buyers
If your annual salary is $100,000, the 30% rule means you should spend around $2,500 per month on your house payment. With a 10% down payment and a 6% fixed interest rate, you could likely afford a home worth around $350,000 to $400,000 (depending on the cost of taxes and home insurance).
Can I afford a 600k house on 100K salary?
A $100K annual salary breaks down to about $8,333 per month. Applying the 28/36 rule, 28 percent of $8,333 equals $2,333. That's notably less than our estimated monthly home payment on a $600,000 house, $3,700, so no, you probably cannot reasonably afford a home purchase of that amount on your salary.
A mortgage on 200k salary, using the 2.5 rule, means you could afford $500,000 ($200,00 x 2.5). With a 4.5 percent interest rate and a 30-year term, your monthly payment would be $2533 and you'd pay $912,034 over the life of the mortgage due to interest.
Myth 1: Being debt-free means being rich.
A common misconception is equating a lack of debt with wealth. Having debt simply means that you owe money to creditors. Being debt-free often indicates sound financial management, not necessarily an overflowing bank account.
Average net worth: $121,760
The median net worth of Americans in 2022 was $192,700, according to the Federal Reserve. That's a $51,555 increase from 2019, roughly a 37% jump and the largest recorded since the Fed began collecting this data in 1989. (Data is in 2022 dollars.) Data source: Federal Reserve (2023).
One in five (22%) have at least $10,000 to $20,000 worth of credit card debt. Of those, just over 5% have more than $30,000.
