An average American household has a credit card debt of $5700. Alaska has the highest average credit card debt at $13,048, and Ohio has the least at just $5,446. California, where I live, is number 4 at $10,496. The total outstanding U.S. Consumer debt is $3.9 trillion. Debt causes anxiety and prevents you from getting what you want. Manage debt by first understanding why you have them.
The Low Income Earner
Median Household Income
The median household income in 2018 was $63,179 compared to $61,526 in 1999. So Americans are not in debt because they over spend on frivolous items. The cost of housing, food, transportation, gas, and goods, all have increased while an average income and raises have not kept up with the rising expense.
It’s no wonder that only 57% Americans have a savings of $1,000. And one third of people between 30-49 have more credit card debt than savings (consumer financial protection bureau CFPB).
Managing debt wouldn’t be a problem, if you have sufficient income.
Income Comparison
Most Americans say they can live on $5,000 per month, which is $60,000 per year. So if your household income is less than $50,000 per year, you are probably living paycheck to paycheck and unable to manage debt.
How does your income compare to the average Americans? See (dqydj.com) for the complete chart.
Age | Average | 25% | Median | 75% | 90% | Top 1% (99%) |
20 | $17,456 | $6,005 | $14,438 | $24,000 | $35,000 | $75,001 |
30 | $48,241 | $24,000 | $40,000 | $60,101 | $90,030 | $210,005 |
40 | $67,409 | $27,509 | $47,529 | $80,400 | $126,384 | $409,164 |
50 | $76,824 | $28,000 | $50,210 | $88,000 | $142,500 | $650,001 |
60 | $74,781 | $29,001 | $50,000 | $83,000 | $140,000 | $480,600 |
65 | $67,327 | $28,684 | $49,009 | $80,019 | $126,898 | $391,000 |
70 | $83,501 | $30,149 | $53,260 | $89,104 | $167,570 | $729,000 |
If you are in the category of a low-income earner, the answer is not in reducing your expense to manage your debt. Rather, the answer is to make more money.
Make More Money to Manage Debt
There has never been a better time to make more money with a side hustle than now, thanks to the internet and social media.
Think about what you do well or what you enjoy doing already.
I worked with a logistic technician who made $15 an hour but had a nice house valued at $500,000. I asked him how he did it on his salary. He said he worked two jobs. A nurse can easily pick up extra shifts or take call.
One of my colleagues makes extra income by renting out his house for filming and made $20,000 in extra income. Not everyone’s going to make $20K with a side hustle but the point is that it is possible.
The Keeping Up With The Joneser
You buy the latest Louis Vuitton bag that costs over $3,000 to take with you on your European trip. You’re in competition with your friends who have closets full of designer purses and brag about their latest travels.
We all have the need to raise our social status. But if the desire to impress others is going to lead you to the road of foreclosure, bankruptcy, or delayed retirement, you may want to ask yourself if it’s worth it. The designer bags, shoes, and first class travel tickets can add up quickly where you are unable to manage your debt.
Recognize that you are the average of 5 people you spend time with. Improve your average by socializing with friends who are in a place you aspire to be one day.
The Compulsive Over Spender
Savers Versus Senders
Some of us are natural savers while others are spenders. It turns out that our brains are wired differently.
The authors in “Tightwads and Spendthrifts,” point out that an area in the brain, called insula, gets activated when experiencing painful stimuli. This area gets activated more with the prospect of buying for the savers; hence, savers avoid the pain of buying. The Spenders insula is less activated, therefore, has less pain associated with buying things.
If you make sufficient income but are still not able to pay the full amount of your credit card bill each month, it is a sign you are spending more than you can afford. Reducing your expense can help.
Retail therapy is often used to fill the void inside. It doesn’t work very well in the long term.
Solutions to Manage Debt for the Over-Spender
Start a Splurge Account and deposit 5-10% of your income. Withdraw this money in cash. Use only cash instead of credit cards. This will help you consider the actual cost at the present and lessen the pleasure that you get from spending money. Once you use all the money, that’s it. You’ll have to wait until next month if you still want the item.
Delay gratification. Give yourself 24 hours to think whether you really want the item. Calculate how many hours you would have to work to pay for it. Visualize yourself working until you are ready to drop.
Create a budget and set financial short term and long term goals. Stay on track by reading your goals daily. By setting goals and reminding yourself what they are, you’ll be able to focus more on the future and learn to delay gratification.
Other Ways to Cut Expense
Here are some other ways to cut expense so you can manage debt:
- Focus on reducing the 3 biggest expenses: housing, transportation, and food
- Downsize your house or get a roommate
- Don’t buy an expensive car
- Pay off your car and keep it as long as possible
- Lower your insurance cost by shopping around
- Eat in, not out
- Track your spending
- Always shop with a list
- Don’t buy unless it is absolutely necessary like food and shelter
- Ask yourself, is it a need or a want?
- Cut out gym membership; running around the block or doing burpees in your living room costs nothing
- Cut cable; Netflix cost $9-$16 compared to the cost of cable that is probably 10 times as much
- Xeriscape your lawn (no gardener required)
“If there is no struggle, there is no progress.”
-Frederick Douglass