Published reports from this week show the average U.S. household debt reaching $152,000. Meanwhile, the national household debt has reached during the second quarter of this year to a little above $18 trillion.
Rob West, CEO of Kingdom Advisors, and host of Faith & Finance on American Family Radio (AFR), says it's a big number but not entirely surprising.
"Over time we've seen consistent growth in household borrowing, especially with higher home and car prices. I think what's surprising is how quickly debt bounced back after the pandemic," states West.
West says there was a temporary decline during COVID as people had the relief funds and cut spending, but now, people are back, and in many cases, worse off as inflation and interest rates pushed balances even higher.
"I would say that, while the number isn't shocking, it is sobering," West comments.
High debt affects more than just your finances. West says it also impacts your freedom.
"First, it limits margin, so it leaves you little room to save, invest, cover emergencies. I think, just as importantly, it stifles generosity. People want to be able to give to their local church or support those in need, and they feel constrained because so much of their income is tied up in debt payments," says West.
Debt also takes a toll emotionally and relationally by contributing to stress and anxiety. For example, in marriages, debt is consistently one of the top sources of conflict, which West says leads to secrecy and blame and reduced trust.
"I would say debt isn't just a numbers issue; it's really a heart issue that affects how we live, give, and relate to one another," West says.
In terms of how much of a budget should be going to 'the necessities,' West says a good guideline is that housing costs, including mortgage, property taxes, and insurance, should take up no more than 28% of gross monthly income.
"Furthermore, total debt payments, that includes mortgage, car loans, credit cards, student loans, that needs to stay below about 35%,” West states. “These thresholds make sure there's room in your budget for all the other things, savings, giving, and unexpected expenses, and when debt crosses those lines, it really creates that financial pressure that's hard to recover from."
As for solutions on how to pay off debt, West recommends the snowball method.
“Smallest to largest balance. Attack that smallest balance first until you can move to the next one. Over $4,000? I'd look at a credit counseling program. The key is intentionality, and we have to make the hard calls," West concludes.
