American families are carrying piles of debt. Though it’s tempting to blame reckless spending for this, the personal finance website NerdWallet takes a different tack. In a recent study. NerdWallet makes the case that consumers have good reasons for taking on debt and that there are signs the situation is improving.
What debt means to households
The level of household debt in the U.S. has risen steeply in the last dozen years. According to the NerdWallet report, entitled 2015 American Household Credit Card Debt Study, debt has outpaced income growth by 15% since 2003.
And consumers are footing a big bill for racking up debt. Erin Issa, the author of the report, says the average household pays almost $7,000 in interest every year. Since the average income in this country is roughly $76,000, that means the average household spends nearly 10% of its income just to make interest payments.
Why consumers are going into debt
The report argues that careless spending habits weren’t solely to blame for the rise in the personal debt. It notes the average household saw its income rise 26% between 2003 and 2015. During the same period, consumer prices rose at a faster rate – especially in a few key spending categories.
For instance, medical costs rose 51% during that time. Food costs rose by 37%. Taken as a whole, consumer prices shot up 29% during the last 12 years. Though that’s only three percentage points higher than the rise in income, the study argues that the very rapid rise in food and medical costs hit vulnerable consumers especially hard.
How to lower your debt
Despite this bleak picture, NerdWallet sees reasons for optimism. The report points out that the gap between debt and income has shrunk in the past few years. In 2009, at the low point of the recession, debt was rising 42% faster than income.
What can you do to combat debt? NerdWallet recommends cutting unnecessary spending. Working from a budget every month may also help. Here are excellent tips on how to create a budget you can stick with.
Experts agree that there’s good debt and bad debt. NerdWallet’s study demonstrates that consumers have been using debt as a way to ride out tough economic times. As the economy rebounds and incomes rise, consumers might not need to use debt as a survival tool.