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.
The exact definition of debt free can vary, though, depending on whom you ask. For example, some people don’t count mortgages because they are viewed as “good debt” by creditors, since they are secured by the property itself. It may be helpful to look at the percentage of people who hold different types of debt in order to get the full picture.
| Type of Debt | Americans With This Type of Debt |
| Credit card balances | 45.4% |
| Debt secured by a primary residence (mortgages and related loans) | 42.1% |
| Vehicle loans | 36.9% |
| Education loans | 21.5% |
| Other installment loans | 10.5% |
| Debt secured by residential property that’s not a primary residence | 4.7% |
| Lines of credit not secured by residential property | 1.5% |
| Other debt | 5.2% |
Source: Federal Reserve data
Americans owe a lot of debt in general – over $17 trillion. Because there are so many types of debt, and debt is usually necessary for big things like owning a home or going to college, very few people are totally debt free. However, having some form of debt isn’t always a bad thing. A mortgage allows you to own your own home long before you’d have the money to do so, for example. And having some sort of debt is actually good for building credit – as long as you make your monthly payments on time and don’t borrow more than is manageable, your credit score will benefit.
Still, you should absolutely try to minimize unnecessary debt. For example, while it’s great to have a credit card, it’s not ideal to carry a balance on one unless you have an introductory 0% APR, as interest is expensive. You should try to pay your balance in full each month. In addition, you should avoid predatory loan types like payday loans and auto title loans that are extremely expensive.
How to Become Debt Free
- Assess Your Debt: List all your debts, including interest rates and minimum payments. This will allow you to take stock of your situation and prepare you to get organized and create a debt payoff plan.
- Create a Budget: Outline your income and expenses to understand where your money is going. After determining how much of your income you need to put toward non-debt expenses, decide what portion of the rest you are willing to put toward paying off your debt. You should also cut out any unnecessary expenses and redirect that money toward your debt. Then, track how you use your money and stick to your goals. You can learn more about how to budget on WalletHub.
- Build an Emergency Fund: Ideally, you’ll want enough money in the fund to pay for 3 to 6 months of expenses. You don’t have to wait until the emergency fund is entirely built to start paying down your debt, but you should put some money toward it each month.
- Choose a Strategy: Focus on paying off high-interest debt first (avalanche method) or the smallest balances first (snowball method). The first strategy will get you out of debt more quickly, but the second one can help keep you motivated by allowing you to meet individual milestones faster. You can learn more about the best way to pay off debt on WalletHub.
- Increase Your Income: If possible, find additional income sources like a part-time job or investments.
- Use Windfalls Wisely: Put unexpected money like tax refunds or salary bonuses toward your debt.
- Avoid New Debt: Resist the temptation to take on additional debt while paying off current obligations. The exceptions to this are if you use a balance transfer credit card or debt consolidation loan to put your debts in one place and lower your interest rate. Still, stick to the budget that you made and don’t make frivolous purchases.
- Use the Island Approach: The Island Approach is when you use different credit cards for different types of transactions. It emphasizes keeping your everyday expenses separate from other types of balances like balance transfers and purchases that won’t be paid in full, so you can maximize the effectiveness of your payments and accrue as little interest as possible. Most importantly, you should strive to pay your everyday expenses in full each month.
- Seek Professional Help if Needed: Consult with a financial planner or debt counselor if you need assistance.
- Stay Committed: Understand it's a gradual process, and stay committed to your plan. Celebrate small victories along the way.
- Review Regularly: Regularly review your budget and debt payoff strategy, making adjustments as necessary.
By following these steps, you can work methodically toward becoming debt free. It's a challenging journey, but with discipline and determination, it's achievable. You can learn more about how to pay off debt on WalletHub. You can also take advantage of free tools such as WalletHub’s credit card payoff calculator and mortgage payoff calculator.
This answer was first published on 08/25/23. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
FAQs
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.
What percent of America is in debt? ›
Even though household net worth is on the rise in America (at $156 trillion at the end of 2023)—so is debt. The total personal debt in the U.S. is at an all-time high of $17.5 trillion. The average American debt (per U.S. adult) is $66,772, and 77% of American households have at least some type of debt.
How much debt is the average American in? ›
The average debt an American owes is $104,215 across mortgage loans, home equity lines of credit, auto loans, credit card debt, student loan debt, and other debts like personal loans. Data from Experian breaks down the average debt a consumer holds based on type, age, credit score, and state.
What percentage of people have credit card debt? ›
Federal Reserve data showed that fewer than half (47%) of credit cardholders carried a balance at some point in 2023. That's down a percentage point from 2021 and 2022 but is down even further from 2020, when that rate was 50%.
How much debt does the average 40-year-old have? ›
Average total debt by age and generation
| Generation | Ages | Credit Karma members' average total debt |
|---|
| Millennial (born 1981–1996) | 27–42 | $48,611 |
| Gen X (born 1965–1980) | 43–58 | $61,036 |
| Baby boomer (born 1946–1964) | 59–77 | $52,401 |
| Silent (born 1928–1945) | 78–95 | $41,077 |
1 more rowApr 29, 2024
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. The exact definition of debt free can vary, though, depending on whom you ask.
What country is in the most debt? ›
Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.
What is the average credit score in the US? ›
What is the average credit score? The average FICO credit score in the US is 717, according to the latest FICO data. The average VantageScore is 701 as of January 2024. Credit scores, which are like a grade for your borrowing history, fall in the range of 300 to 850.
Which generation has the most debt? ›
By most measurements, Gen X is deeper in debt than other generations. Members of Gen X — born roughly from 1965 to 1980 — have the highest average debt stemming from student loans, credit cards and more.
What is the average credit card debt? ›
The average total balance of a U.S. household is about $7,226. A look at rising interest rates explains how this can become a problem. In November 2021, the interest rate on that credit card debt was 15%. That worked out to $90 per month in interest.
Running up $50,000 in credit card debt is not impossible. About two million Americans do it every year. Paying off that bill?
Which gender in this country has more debt? ›
On average, men have more debt than women across all categories, except for student loans. While there isn't much data yet, early studies have shown that nonbinary students undergo more financial strain than their cisgender peers, and are more likely to have student loan debt.
Which age group has the most credit card debt? ›
But one generation carries the most, on average: Gen X. The average credit card balance for Gen Xers, defined at those between the ages of 43 and 58, rose to $9,123 in the third quarter of 2023, according to Experian's latest available data. That marks the highest average credit card balance of any generational cohort.
What percentage of 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.
At what age do most Americans pay off their mortgage? ›
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. Stats from 538.com, for example, suggest the age is around 63.
What is a good age to be debt free? ›
“Shark Tank” investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
Who is the US debt owed to? ›
Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.
What rank is America in debt? ›
The United States has the world's highest national debt at $31.4 trillion. Global debt currently stands at $305 trillion, $45 trillion higher than before the COVID-19 pandemic, according to the Institute of International Finance (IIF) – a global association of the financial industry.
Why is the US the most in debt? ›
One of the main culprits is consistently overspending. When the federal government spends more than its budget, it creates a deficit. In the fiscal year of 2023, it spent about $381 billion more than it collected in revenues. To pay that deficit, the government borrows money.
What is the debt to income ratio in the US? ›
Traditionally, lenders have said that your housing costs (mortgage principal and interest, homeowner's insurance, and property taxes, also known as PITI) shouldn't exceed 28% of your gross income, and that your overall debt (PITI plus car and other loan payments) shouldn't exceed 36%.
