Most of us can quickly rattle off our monthly debt payments without hesitation. We know how much we pay on our mortgage, car loan or student loans. But when it comes to the total amount of debt we owe? We often don’t respond as fast, because we just don’t know.
“We have truly become a monthly payment nation,” says Christopher Viale, president and CEO of Cambridge Credit Counseling. “Many consumers are unaware of their total indebtedness because, when they take on a new debt, their only concern is whether the monthly payment can be squeezed into their budget.”
But the total numbers matter. A lot. If you haven’t added up your debt, you probably have not created a plan for digging out. And you don’t likely know how much that debt is costing you, both in terms of interest charges, as well as the “opportunity cost of tying up so much of (your) earnings,” says Viale.
But fessing up — whether it is to yourself, a financial planner or a credit counselor — can be terrifying. Karen McCall, founder of the Financial Recovery Institute, has seen this first hand with many of her clients over the years. In her book, Financial Recovery, she writes:
When people come in for financial counseling, I can see how hard it is for them to “confess” how much they owe in credit card and other consumer debt. I use the word confess intentionally, because people have often hidden the amount that they owe from people they love and from themselves. They’re ashamed and talk as though they’re confessing to a heinous crime.
How Do You Compare?
According to Experian’s fourth annual State of Credit study, the average debt in the U.S. is $27,887. For many people that includes a combination of credit cards, auto loans, student loans and personal loans.
Generation X carries the highest average balance at $30,039. Baby boomers are next, with an average balance of $29,317 followed by millennials at $23,332 and the Greatest Generation (ages 66 and older) at $23,245.
Those figures don’t include mortgages or medical debt not listed on credit reports, which can add substantially to the total. One study, for example, found that 26% of American adults have unpaid medical bills that are past due.
Getting a Grip
If you’re feeling overwhelmed by debts scattered among various credit cards and loans, keep in mind there are free tools that can help you tally your debt without triggering a severe case of math anxiety.
For starters, your credit report is a great source of information about your debts. Your balances from your most recent credit card statements should be listed, along with many other debts such as student loans, mortgages, auto loans and collections accounts. You can get your free credit reports once a year.
And a tool like Credit.com’s free Credit Report Card will not only show you how much you owe, but will also show you how your debt compares to that of other consumers. More importantly, you’ll find out how your debt is affecting your credit scores. You’ll get a grade for the “debt” listed on your credit report. Anything less than an “A” means you may have some work to do there.
When adding up your debt, don’t forget to include balances for debts that don’t appear on your credit reports. These may include:
- personal loans from friends or family,
- medical debts you are paying off directly to the hospital or provider, or
- business debt that you are personally responsible for but is not listed on your reports.
It’s All In the Planning
Once you’ve tallied the totals, you can create a plan for getting out of debt. Don’t underestimate the power of a plan.
Chase Blueprint, for example, is a tool that allows cardholders to create a debt payoff plan for their balances and monitor their progress online. It’s been remarkably successful. More than 3 million plans have been created since 2009, and 91% of Blueprint customers pay more than their minimum payment every month, compared with 40% of all American credit cardholders. Even more encouraging is the fact that 90% of Blueprint customers stay committed to the plans they set up.
Don’t throw in the towel if the numbers seem daunting. Viale says that many of Cambridge Credit Counseling Service’s clients, who want pay off their balances quickly, are surprised when their counselors suggest a debt management plan of four years or more. “But they need that space to comfortably and safely pay down their unsecured debt, simply because their other expenses have left them very little breathing room — and that’s after creditors drop their interest rates on our plan,” he notes.
If you can’t do it on your own, you can seek help from a credit counseling agency, financial planner or money coach, or even a bankruptcy attorney. With a plan, and guidance if you need it, hopefully those fuzzy numbers will turn into a clear plan — and you’ll have a get-out-of-debt success story to share!
Image: Tetra Images