What Debt Looks Like Across Income Levels
Written by
John Csiszar
Edited by
Rebekah Evans
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Overall, the debt picture in America is a bit concerning. According to the Federal Reserve Bank of New York’s latest Household Debt and Credit Report, total household debt in the U.S. recently hit a record $18.59 trillion.
Perhaps this is not surprising, as the Federal Reserve’s Survey of Consumer Finances showed that 77.4% of U.S. families carry some form of debt, with those owing money holding an average debt of $80,200. But if you break down that number, you’ll find that debt actually varies quite a bit on average across income levels.
Lower-Income Households: Smaller Balances and a Heavier Overall Burden
The good news is that lower-income households carry lower amounts of debt in terms of absolute dollars. However, that’s usually because they don’t have the capital or credit scores to qualify for large loans, like home mortgages.
Unfortunately, the interest rates that lower-income households pay tend to be among the highest, for these very same reasons.
An analysis by the St. Louis Fed showed that households in the lowest income decile hold credit card balances equal to roughly 85% of their monthly income. This is the highest ratio of any income group and is one of the reasons why they also pay the highest interest rates on their debt.
Middle-Income Households: Use the Most Debt
Middle-income households are the leaders when it comes to actually carrying credit card debt. The same St. Louis Fed report showed that more than 60% of households in the upper-middle income deciles carry revolving balances, which is a much higher percentage than both lower- and higher-income groups.
Many households in this income bracket rely on debt to help them manage cash flow, as they are often bombarded by a combination of mortgage, vehicle and medical expenses in conjunction with higher overall inflation-driven cost increases.
Higher-Income Households: Larger Balances and Lower Stress
What might be surprising is that higher-income households tend to hold the largest debt balances, per the Federal Reserve SCF report. However, this income group has the most capital, which also gives them the most flexibility in how to handle debt.
Overall, the SCF showed that the median debt payment-to-income ratio for this higher-income group was just 13.4% in 2022, a very manageable level and the lowest reading on record. Mortgage and student loan debt tend to be the biggest obligations for this income group, meaning their debt tends to provide both investment returns and educational opportunity.
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