Nov 14, 2025
Digging into a typical American household’s budget reveals where a huge share of cash really goes. It’s not food, vacations or even medical bills.
For most families, transportation is the second-largest expense after housing — and because that category is dominated by car ownership and operating costs, it can quietly drain long-term wealth.
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Unlike a home, which can appreciate over time, cars lose value the moment you drive them off the lot. Add in rising sticker prices, high interest rates and record debt, and it’s easy to see why millions of Americans are spending far more than they realize just to stay on the road. Here’s what the numbers reveal, why transportation costs are climbing and what you can do to avoid “car poverty.”
Transportation is the second largest expense for a family’s budget
On average, consumers across the country spent $77,280 total on an annual basis in 2023, according to the most recent Consumer Expenditures survey by the Bureau of Labor Statistics (BLS) (1). Here’s where that money went.
Housing took the largest share at 32.9%, while transportation ranked second at 17.0% — well ahead of food (12.9%), personal insurance and pensions (12.4%), health care (8.0%), and entertainment (4.7%).
What’s inside that transportation bucket? The BLS shows $13,174 in average transportation outlays, including vehicle purchases (net outlay), gasoline, public and other transportation, and other vehicle expenses such as insurance, repairs, fees, and finance charges. Combined, private-vehicle costs make up the vast majority of the category, not airfare or train fares.
Unlike housing, which can build equity, vehicles lose value the moment they’re driven off the lot. According to Kelley Blue Book data, a typical car loses roughly 20% of its value in the first year and 60% within five years (2). AAA estimates that owning and operating a new vehicle costs about $12,000 a year, or nearly $1,000 a month, underscoring how quickly transportation eats into disposable income (3).
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A growing problem: high prices, high rates, and heavier debt
The cost of buying a new car has been rising in recent years and hit a record-high $50,080 in September, 2025, according to Kelley Blue Book (4). The company estimates that the ongoing trade war and tariffs on auto parts could raise the price of a typical vehicle priced under $40,000 by an additional $6,000 (5).
These rising prices haven’t discouraged consumers from buying multiple cars or substituting for cheaper brands, however. Many buyers have simply borrowed money to finance their purchase instead.
As of mid-2025, households across the country were collectively sitting on $1.66 trillion in auto loan debt, according to the Federal Reserve’s Household Debt and Credit Report. That’s the largest source of non-housing debt for the country (6).
Not only is this debt burden immense, it’s also expensive. The average interest rate on an auto loan for a new car is 7%, as of September, while used cars can be financed for an average of 10.7%, according to Edmunds (7).
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Surging debt coupled with the natural depreciation of vehicles has left many car-owners underwater. According to Edmunds, nearly 28.1% of trade-ins had negative equity, which means the outstanding loan was worth more than the car, in Q2 2025. That’s the highest rate in four years. (8)
Put simply, one in four Americans could be classified as “car poor” and the number keeps rising. But that doesn’t mean avoiding this crisis is impossible.
How to avoid car poverty
If you and your family are trying to avoid the auto loan debt trap, it’s important to start thinking of your car as a necessity rather than a status symbol.
Consider buying a used car instead of a new one. As of September, the average used car sold for just $25,825, according to Kelley Blue Book, nearly half the price of a typical new car (9).
You could also target the interest rate on your auto loan to find savings. Consider putting a larger down payment on the vehicle to reduce your debt burden. Shop around for better rates. Take the time to build a better credit rating so that you can lock in a better interest rate for the long-term.
Finally, avoid rolling over old debt into new loans and consider the total cost of ownership — not just the monthly payment.
For most families, reducing the cost of transportation could be the single most effective way to free up money for savings and investing. Every dollar not tied up in car payments, insurance, fuel, or repairs can instead go toward building genuine wealth — the kind that grows instead of depreciates.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
BLS (1); Kelly Blue Book (2), (4), (5), (9); AAA (3); Federal Reserve of New York (6); Edmunds (7), (8)
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
