What You Should Know About Debt, Loans And How To Manage It All

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There are so many kinds of debt. Learn more about the major types, how to calculate your credit score, definitions on the variety of loans, links to local resources for debt relief and more.

Debt is a burden most Americans carry. Make that approximately 122 million U.S. households. That’s as of 2013, according to the U.S. Census Bureau. Debt can take many forms — consumer, medical and academic — often plaguing the financial health of individuals and families. Sometimes it takes just one incident to take a dive into debt: things like an emergency surgery, a tuition increase or a salary cut.

Debt has grown over the last decade. The rise in the cost of living has outpaced income growth over the past 12 years, according to a 2015 study from NerdWallet. “While median household income has grown 26 percent since 2003, household expenses have outpaced it significantly — with medical costs growing by 51 percent and food and beverage prices increasing by 37 percent in that same span.”

Debt has a stigma. Consumers underestimate or under-report how much debt they have. Actual lender-reported credit card debt was 155 percent greater than borrower-reported balances as of 2013, NerdWallet reported.

The total debt of any kind owed by the average American household is $132,086. Here’s a breakdown of the debts owed by the average American household as of the first quarter of 2016:

CONSUMER DEBT AND CREDIT CARDS

Consumer debt is defined as a debt incurred by an individual for primarily personal, family, or household purposes. American consumers use credit cards to buy life’s essentials: food, clothing, housing and transportation. As of 2014, there were 603 million U.S. credit cards in circulation, according to Debt.org.

When the economy is in flux, one thing is constant: spending. NerdWallet reports the average household has $15,310 on credit cards.

HOW TEXAS COMPARES WITH THE U.S.

Texans have less debt than most other Americans, carrying about $13,500 less than the national average, according to Debt.org. Texans have less credit card debt, education loans and other personal debts than the rest of the country, and they have managed to cut their bankruptcy rate in half over the past few years.

The downside: Texans have some of the lowest credit scores in the country, a result of falling behind on bills and making late payments, Debt.org reported.

Of top 25 largest metros in the U.S., Houston (No. 21), Dallas-Fort Worth (No. 24) and San Antonio (No. 25) all ranked as cities with large credit card burdens in a study from CreditCards.com. The study determined the rankings by how long it takes residents to pay back their credit card statements.

About FICO Scores

Credit scores are an assessment of your credit history and how well you handle money. Lenders use them to determine interest rates and credit limits.

The average FICO score in the U.S. is 680. An ideal score is 720 or above. Calculate your score.

A FICO score accounts for five main things:

1. Have you paid your credit accounts on time?
2. Do you owe money on your credit cards?
3. How long have you used credit cards?
4. How many credit accounts have you opened? In what time frame?
5. What does your mix of credit cards, retail accounts and mortgage loans look like?

Each category has a different weight of importance, and some might not apply directly to everyone.

MEDICAL DEBT AND THE COST OF HEALTH CARE

The United States is an expensive place to get sick. Americans pay three times more in third-party collections of medical debt each year than they pay for bank and credit card debt combined, according to NerdWallet.

About a quarter of U.S. adults under 65 say they or someone in their household had problems paying or an inability to pay medical bills, according to a study from The New York Times and Kaiser Family Foundation. To compare, 53 percent of people without insurance said the same.

According to the study, twice as many people (66 percent) say their debt was a result of a one-time or short-term medical expense than people with bills building over the course of a chronic or long-term illness (33 percent).

ACADEMIC DEBT AND STUDENT LOANS

People who attend college are likely to make twice as much money as those who do not, according to the Texas comptroller’s office. A college education typically gives students the financial power to live independently and to eventually buy homes and cars and start a family. Student loan debt is delaying many these post-graduate milestones.

The growth in student loan debt follows the growth in the cost of attending college. In Texas, average in-state public university tuition and fees rose by 90 percent between 2003 and 2012.

The average 2012 Texas student loan debt was $22,800, about 8 percent below the U.S. average at that time, according to the state comptroller’s office.

In 2014, the average U.S. student debt for a recent graduate was $33,000, according to Debt.org. A year later, The Wall Street Journal reported the average class of 2015 graduate would owe a little more than $35,000.

Almost 71 percent of bachelor’s degree recipients will graduate with a student loan, compared with about 64 percent a decade ago and less than 50 percent two decades ago, according to the Journal.

The average cost of a public four-year university in the U.S. for the 2015-2016 school year was $9,410 and for a private, four-year university: $32,405, according to CollegeBoard.

What you might earn in your first year after graduation

Austin-based nonprofit TG built a tool that calculates what your income/employment rate will likely be by school and by major. Use the tool on TG’s website.

It also predicts your student loan repayment by the same criteria. It includes every school in Texas that’s public or for profit. You can compare the same major at two different schools OR three different majors at the same school.

Types of Loans

Toggle the plus signs to read the full definition of each type of loan, according to Debt.org.

Resources For Tackling Debt