Jul 19, 2024
There’s a growing wave of consumer debt — to the tune of $17.1 trillion — spreading across America, and one Texas couple is right in the thick of it.
San Antonio-based teachers, Lily, 33, and Mark, 40, have managed to accumulate a whopping $135,800 in consumer debt. More than half of it is tied up in auto loans with interest rates as high as 18% — a number that left personal finance celebrity Caleb Hammer in shock.
Advertisement
“What are you guys doing to your future?” he asked after looking through their bank statements on an episode of his YouTube series, Financial Audit. “How could you sign this? How could you see the number 18 and sign it?”
Unfortunately, Mark and Lily are prime examples of how American consumers haven’t cut back in the face of the rising cost of living — and have ramped up on borrowing instead.
Consumer debt tsunami
In the first quarter of 2024, American households collectively had $4.87 trillion in non-housing debt, according to the Federal Reserve Bank of New York’s latest numbers.
Auto loans account for the largest portion of this debt balance. American consumers have $1.62 trillion in auto loan debt — which is larger than the outstanding student loan balance — and it makes up nearly a third of all non-housing debt across the country.
The elevated costs of new cars, coupled with aggressive marketing tactics by dealerships and lenders, often leads consumers to take on loans with unfavorable terms.
The average price of a new car, as of May 2024, was $48,389, according to data published by Kelley Blue Book. High interest rates, such as the 18% that Mark and Lily are burdened with, can quickly escalate overall monthly payments, making it challenging for borrowers to keep up.
Advertisement
The couple has a total of $70,000 in outstanding auto loans — $48,715 of which is for a 2022 Toyota Sienna Minivan. With a 75-month term and 18% interest rate, Mark and Lily are on the hook for $1,094.55 in minimum monthly payments for just this auto loan alone.
That’s just the tip of their debt pile. The couple has a mortgage, student loans and an array of credit card balances. “[You] really have every debt possible,” Hammer remarked.
To be fair, the couple believes their student loans could qualify for forgiveness and the mortgage is backed up by an appreciating asset. Setting those aside, Hammer estimated they still have $135,800 in what he calls, “bad debt.”
Unsurprisingly, servicing this debt has put a significant strain on their budget. Hammer calculated that the couple earned $9,098.52 in combined income last month — but their total spending was $9,266.57 for the month.
As a result, 40% of their income is dedicated to minimum debt payments on a monthly basis. “[You] are in the hole, in the red,” he said.
Advertisement
However, Hammer believes it’s possible for the couple to get out of debt in just over two years.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
A two-year escape plan
Cutting back on unnecessary expenses and downgrading to cheaper vehicles could make a huge impact in Lily and Mark’s financial life.
Hammer estimated that, with a tight budget focused on essentials, they could end up with $3,328 in spare cash every month.
This excess cash flow could be used to pay off debt. In fact, Hammer calculated that it could take them just one month to pay off five of their smallest credit card debts using the snowball method and to cobble together a one-month starter emergency fund. That is, if they stick to their strict budget.
Altogether, Hammer estimated it would take them a little over two years to fully pay off all their bad debt and create a robust foundation for their financial future.
“That’s f–king wild,” Hammer said. “For the average guest who comes on this show, that's a two-decade journey. You guys are beyond blessed and you need to take advantage of that. If you don't, it's the biggest waste of an opportunity that I think I’ve seen in the history of this show.”
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
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.
