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Do You Have More Debt Than the Average American?
By Molly McCluskey, The Motley Fool Posted 9:49AM 07/02/12

Since the beginning of the recession, Americans have been saving more, paying down debt, and curbing spending. Now, a new study shows that individual debt is falling at the fastest rate in nearly 50 years. But not everyone is contributing positively to that statistic, and many Americans are still struggling with overwhelming debt.

Americans have increasingly been paying down their mortgage and credit card balances. But even as total consumer debt has diminished by approximately $100 billion (down to a mere $11.4 trillion), more than $1 trillion of our current debt load is delinquent, and nearly $800 billion of that is overdue by more than 90 days. And while owing less is a good thing, the study shows that we're burning through our savings to pay our debts down. The overall net worth of the average American is down nearly 40% from 2007 to 2010.

Much of that decrease has come from the steep decline in home values. The National Association of Realtors recently released statistics on the sales of existing homes in May 2012, which showed mixed news. Overall, home sales are down, but the median sales price is up to $182,000.

Credit card debt may be the third largest form of debt in the U.S., but it's decreasing. Americans paid off 5.2% of outstanding credit card debt in 2012, which is 12% more than in 2011, but 8% less than in 2010.

Borrow, Learn, Earn?

Overall household debt has fallen steadily since 2008, but the same can't be said for student loan debt, the level of which has risen every quarter since 2003. It reached $904 billion in the first quarter of 2012, an increase of $30 billion from the last quarter of 2011.

The average student loan debt is approximately $23,000. Last year, for the first time, Americans owed more on student loans overall than they did on their credit cards.

Today, the average American owes approximately $47,000. To put that number in perspective: It costs approximately $35,000 to start either an H&R Block or a 7-Eleven franchise; $40,000 can buy a three-bedroom house in some parts of Orlando, Fla., (and home prices are similar in hard-hit neighborhoods across the country); and one year at a private high school will run about $50,000.

Our average level of debt is also more than most of us earn in a year. For 2010 (the latest year for which figures are available), the Social Security Administration calculated that the average American salary was $41,673.83.

All Debt Is Not Created Equal

While it's helpful to get a sense of where Americans are struggling financially, such statistics are a mere snapshot of much larger, denser, and more complex issues.


The level of credit card debt isn't broken down into categories -- for instance, discretionary spending versus necessary living expenses. Is someone putting a new iPod on the credit card, or are they buying food for the family? Hidden in credit card debt could also be educational expenses posing as discretionary spending. Are students who were unable to obtain educational loans using their plastic to pay for classes or books? Or, from a different angle, have homeowners pushed debt from the credit car to the mortgage category by taking out home equity loans to pay off high-interest credit cards?

Such snapshots also don't take into account the wide range of interest rates each type of debt carries. As of today, the average rate for a 30-year mortgage is around 3.6%. For a balance-transfer credit card, an average rate is more than 16%. The standard rate for federal student loans is 3.4%. (That was set to double to 6.8% this week, but on Sunday, Congress slipped in just ahead of the deadline and passed a deal to extend the lower rates for another year.) But looking at the overall debt load each American carries, regardless of interest rates, is the necessary starting point of a much longer struggle.

Become a Teacher

Many school districts are desperate for teachers to work in low-income schools or to teach in high-demand programs. In return for teaching for five years, college graduates may be able to get large portions of their loans forgiven. The exact payoff depends on the type of loan, but the benefits can be huge: Stafford loans; may qualify for up to $17,500 in repayment, while Perkins loans; may qualify for full forgiveness.

Join the Peace Corps

Facing huge amounts of student loan debt? Eager to see the world? Desperate to fill out your resume? Look no further! The Peace Corps will cancel up to 70% of Perkins student loan debt. When it comes to Stafford and consolidated loans, the deal is not quite as good -- the Peace Corps will allow full deferment for up to 27 months, but won't pay off loans. Right now, though, spending a couple of years filling out a resume and waiting to enter the job market could be a very attractive option!

Volunteer with Americorps and Vista

For new grads who are interested in volunteering, but aren't interested in traveling halfway around the world, Americorps and VISTA could be attractive options. VISTA places volunteers with nonprofit groups, while Americorps places them in a variety of jobs, from teaching school to environmental cleanup. In return for a one-year stint, workers in both programs get stipends of up to $7,400, plus $4,725 to pay off loans.

Enlist in the Military

The military offers some outstanding education resources, including the Montgomery GI Bill, which can cover more than half of the cost of a college education. For graduates facing heavy loan debts, the Army National Guard has some particularly nice options, including the Student Loan Repayment Program which will pay up to $50,000 worth of student loans, depending upon the student's area of study.

Become a Rural Veterinarian

Love working with animals, but hate being in debt? The Department of Agriculture's Veterinary Medicine Loan Repayment Program may have the answer: Qualified applicants may receive up to $75,000 in loan forgiveness -- $25,000 per year for up to three years. The only catch is that you'll probably have to get used to living in the boonies -- participants are placed in areas that have insufficient veterinary coverage.

Take Your Medical Degree to the Sticks

Veterinarians aren't the only ones who can benefit from loan forgiveness -- the government also offers some great loan forgiveness options for human doctors. Health care professionals looking to have the Northern Exposure experience might consider working with the National Health Service Corps and the Nursing Education Loan Repayment Program, both of which place medical workers in underserved regions.

Nor are small towns the only place where doctors can get their loans paid off. The National Institutes of Health will repay up to $35,000 per year in loans for qualified clinical researchers, and many hospitals will help repay loans for doctors who agree to work in physical therapy, among other career tracks.

Do Good with Your Law Degree

As many young law school grads have been discovering, a Juris Doctor degree is not the moneymaker it once was. Luckily, some states, Maryland, offer loan repayment aid for state employees who have studied law. For that matter, there are several programs that will help pay off loans for lawyers who work with nonprofits or public interest groups.

Join the French Foreign Legion

If worst comes to worst, you could always try escaping from your loans by literally escaping. The French Foreign Legion, for example, not only offers the opportunity to go to foreign lands, but encourages new members choose a new identity. Enlistment is for five years, and new enlistees receive roughly $1,400 per month. After serving one stint, legionnaires may apply for French citizenship, an option that may give you legal protection from your creditors, in addition to a pretty sweet state-run universal health care system.

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