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75% of Americans are in debt. I'd like to know if I'm also considered in debt if I am paying my mortgage on a house.

I didn't think I was in debt if I own the house. I guess I pay 'rent' to a bank who sold the mortgage to me. If I stop paying, I lose the house I never 'owned'.

So what is the reality? Are people considered in debt if their only 'debt' is the mortgage/loan for their house, or are these people excluded from the statistic?

Mark Rogers
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Grasper
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    Mortgage is debt, why would you think otherwise. – DumbCoder Apr 24 '15 at 14:28
  • because I own the house that has the value of those lent money? So actually I'm not in dept... – Grasper Apr 24 '15 at 14:29
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    You're in debt if you owe money to somebody else. That you might own assets that could be sold for more than the debt doesn't alter that fact. It might mean you have a positive net worth, but that's a different matter. – Nigel Harper Apr 24 '15 at 14:32
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    You own the house, but if you were to sell it and have the cash you'd still owe the bank their money. You don't own it "outright", like you own the things you buy without taking out a loan for. – David Rice Apr 24 '15 at 14:58
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    A person with $2,000,000 in the bank and a $1,000,000 mortgage is defined as "in debt", even though their net worth is a million bucks. You are correct in thinking that "in debt" has a rather silly meaning now adays. – BrianH Apr 24 '15 at 15:54
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    @BrianDHall: Not at all. It's simply that "in debt" (a binary condition) and "net worth" (a numeric value) are two completely distinct things. – Mason Wheeler Apr 24 '15 at 16:59
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    @MasonWheeler I certainly agree that's the underlying meaning, but that's very often not how it's used - both in common conversation and by popular financial advisers. The connotations of the term have led to the idea that getting "out of debt" is universally good, and being "in debt" is bad - with no further qualification. If the $2mil was racking up an 8% average return and the $1mil was borrowed at 3%, getting "out of debt" sounds like a good thing when it'd be awfully odd strategy to really suggest to someone in the situation. – BrianH Apr 24 '15 at 18:32
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    @BrianDHall, well that's what Lehman Brothers thought ... . Debt represents a risk. It may be a sensible risk, but it's still a risk. – Charles E. Grant Apr 24 '15 at 18:48
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    @BrianDHall: As the old saying goes, those who understand interest earn it; those who don't, pay it. – Mason Wheeler Apr 24 '15 at 19:01
  • @CharlesE.Grant The risk is certainly very, very important to consider - but both debts and assets are, in fact, risks. The house may decrease in value, the stock market might fall, your bank account could be frozen - but trading away an asset to pay a debt trades one kind of risk for another; it may not reduce overall risk at all, but even increase it. – BrianH Apr 24 '15 at 19:01
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    LOL, no your mortgage does not count as a debt, it's imaginary. (I think the fact that this question even exists illustrates what is wrong with America financially.) – Five Bagger Apr 24 '15 at 19:25
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    Yes your mortgage is a debt. It's a debt that most families have to take out in order to afford a house, an incredibly common one, and one that you may fiscally be beyond if you're able to sell your house for more than the principle of your mortgage, but if you took out a loan and are paying it off, whether it's a student loan, a car loan, or a mortgage, it's a loan, and you are in debt. – Zibbobz Apr 24 '15 at 20:51
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    I think this illustrates the technical definition of debt vs the societal attitude towards debt. As many people have pointed out, yes a mortgage is a debt. However more interesting is that the only reason you might phrase the question as "well does a mortgage count" is because we see a house as good and we see debt as a bad thing, something that poor or financially irresponsible people have. Debt is not necessarily bad. All huge companies, GE, Google have big debts but they can afford to carry them. Can you afford your mortgage with your income is the better question. – chrisfs Apr 27 '15 at 00:48
  • @chrisfs, Not question if I afford my mortgage but if my house has the value of the mortgage amount... – Grasper Apr 27 '15 at 12:39
  • "If the $2mil was racking up an 8% average return and the $1mil was borrowed at 3%, getting "out of debt" sounds like a good thing when it'd be awfully odd strategy to really suggest to someone in the situation." The flaw in your reasoning is that the 8% return is an average that you only "realize" when you sell the asset. OTOH, the debt payments are due every month/quarter/etc. – RonJohn Jul 27 '19 at 19:25

7 Answers7

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The statistic you cited comes from the Federal Reserve Board's Survey of Consumer Finances, a survey that they do every three years, most recently in 2013. This was reported in the September 2014 issue of the Federal Reserve Bulletin. They list the percentage of Americans with any type of debt as 74.5 in 2013, down slightly from 74.9 in 2010.

The Bulletin also has a table with a breakdown of the types of debt that people have, and primary residence mortgages are at the top of the list. So the answer is yes, the 75% statistic includes Americans with home mortgages.*

The bigger question is, are you really "in debt" if you have a home mortgage? The answer to that is also yes. When you take out a mortgage, you really do own the house. You decide who lives there, you decide what changes you are going to make to it, and you are responsible for the upkeep. But the mortgage debt you have is secured by the house. This means that if you refuse to pay, the bank is allowed to take possession of the house. They don't even get the "whole" house, though; they will sell it to recoup their losses, and give you back whatever equity you had in the house after the loan is satisfied.

Is it good debt? Many people think that if you are borrowing money to purchase an appreciating asset, the debt is acceptable. With this definition, a car loan is bad, credit card debt is very bad, and a home mortgage might be okay. Even Dave Ramsey, radio host and champion of the debt-free lifestyle, is not opposed to home mortgages. Home mortgages allow people to purchase a home that they would otherwise be unable to afford.

* Interestingly, according to the bulletin appendix, credit card balances were only included as debt for the survey purposes if there was a balance after the most recent bill was paid, not including purchases made after the bill. So people that do not carry a balance on their credit card were not considered "in debt" in this statistic.

Ben Miller
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  • here I would have one more question. If I own the house and pay off dept, am I still in dept because I still have to pay property taxes? – Grasper Apr 24 '15 at 14:49
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    @Grasper Generally property tax is not considered debt unless you are late paying it. The property tax is required for everyone every year, and you are essentially paying for required services each year. It is similar to a mortgage, however, in the sense that, if you don't pay it, you will lose your house. – Ben Miller Apr 24 '15 at 14:52
  • Does even have sense to own a house if you still have to pay something to avoid losing your house. Isn't better just to have your mortgage and just work on your savings? – Grasper Apr 24 '15 at 14:55
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    @Grasper Well, everyone pays property taxes, because that is how local government is funded. Even renters that don't own a home pay property tax, just indirectly, because the property tax is part of the rent. (The landlord charges enough rent to cover the property tax and still profit.) – Ben Miller Apr 24 '15 at 14:58
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    If home mortgages weren't allowed, there would be very few people who could afford to own a home. You've got the cause and effect backwards there. Back before home mortgages were invented, and again before government agencies were created to create a secondary market for them, plenty of people could afford to own a home. Doing away with these things wouldn't do away with home ownership; it would do away with the way they changed it--housing prices going so high that the average person can't afford to own a home without placing themselves in bondage to a bank for 2/3 of their productive life. – Mason Wheeler Apr 24 '15 at 17:01
  • @MasonWheeler You've got a good point there. I've changed the wording in my answer a little. – Ben Miller Apr 24 '15 at 17:04
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    I don't think the new wording is any better, really, because it still implies cause and effect being opposite to what they should be (as described by @MasonWheeler in the above comment). It would probably be better to say that, if regulations were changed now such that mortgages were no longer allowed, a lot fewer people could afford to pay today's housing prices (which would naturally lead to a downwards correction, one way or another). – user Apr 24 '15 at 17:08
  • I've tried again. :) This time, my answer no longer addresses the possibility of whether or not anyone would be better off if mortgages did not exist. That isn't really the focus of my answer, anyway. – Ben Miller Apr 24 '15 at 17:14
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    To say that a house is 'an appreciating asset' is arguable at best, if not downright wrong. – Calculus Knight Apr 24 '15 at 17:51
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    @Tachibanaian Houses don't always increase in value (the definition of "appreciating"), but they often do, especially compared to other things you might buy with debt (cars, for example). – Ben Miller Apr 24 '15 at 17:59
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    @BenMiller Houses depreciate and require upkeep likewise. Even without taking into account possible reforms to get with the style of the decade, I think it's misleading to put a car and a house in different categories. The fact that people like to own their home doesn't make mortgage debt any better than 'car debt'. – Calculus Knight Apr 24 '15 at 18:09
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    @TachibanaIan: Agreed. They say that those who don't learn from history are doomed to repeat it. What they didn't say is that sometimes, the history we don't learn from is within recent memory. The widespread practice of treating a house as an investment, rather than a home, was the underlying cause of the 2008 crash, and anyone trying to do the same today is an idiot, and is doomed to repeat the mistakes of less than a decade ago. – Mason Wheeler Apr 24 '15 at 19:03
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    This link reinforces what I'm trying to convey. I feel it's important to debunk somehow the dogma of house ownership as an inherently positive financial decision. A healthy dose of scepticism and analysis is always beneficial. http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ – Calculus Knight Apr 24 '15 at 19:39
  • @Tachibanaian I don't disagree; a home can be a bad investment. But I'm also not going to say that home ownership and mortgages are always bad, because, as a home owner and mortgage borrower, that would be hypocritical. – Ben Miller Apr 24 '15 at 20:11
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    @BenMiller No, it would be hypocritical if you thought one way but recommended the other one. The same way a smoker can acknowledge smoking is bad and recommending people not to do so. The point I'm trying to make is: a home is not an investment. It's an expensive asset that in most cases requires being in debt for a long period. I think it's relevant to the question and important to highlight it. – Calculus Knight Apr 24 '15 at 20:50
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    I might get burned at the stake for even daring to suggest this on a site where money and personal finance are the central focus, listed right there in the name even... but there are plenty of good reasons to own a home, even though it is unequivocally a bad monetary investment (outside of bubble conditions), because there are plenty of things that are more important than money. – Mason Wheeler Apr 24 '15 at 20:55
  • @MasonWheeler - not at all. But if you read the question, and this answer, the comments go down a rabbit hole. – JTP - Apologise to Monica Apr 24 '15 at 21:54
  • @MasonWheeler outside of bubble conditions? I would argue that is the worst time to invest! –  Apr 25 '15 at 01:28
  • I don't entirely agree with "you decide what changes you are going to make to it". The mortgage I have has some clear terms and conditions that prevents me from doing anything to the house that would notably decrease the value of the house. – Ivo Apr 25 '15 at 13:20
  • @IvoBeckers You do get to decide what changes you make to it, but you might have to pay off your mortgage first. That's one of the things that you agree to when you take on a secured debt: that you won't destroy the security. So if you want to tear down the house, you can, but first you need to pay off the mortgage. – Ben Miller Apr 25 '15 at 13:27
  • @BenMiller Let's think a moment about value of 1969 Ford Mustangs and Detroit suburban homes. Thinking about "appreciation" belongs to speculation vehicles, not assets. The purpose of an asset is to generate income other than it's own value. And "good debt" is one that costs less than income generated by the asset in question. "cars bad, homes good" is gross oversimplification. – Agent_L Apr 27 '15 at 10:02
  • In some US states, you could lose your home if you get sued. It would be silly to claim that means you don't own your home. The same applies to the argument that mortgages and property taxes mean the bank or the government, respectively, own your home. You own and control the home, and get all the upside if it appreciates in value. You owe the bank, the government, and someone who sues you money, which could in some cases cause you to lose the home, but you still owned it. – stannius Sep 01 '15 at 18:11
  • @MasonWheeler Without mortgages, house prices would go down, but not so far down that the general public could afford them; before prices reached that point, rich people would buy houses and rent them out. So we would end up with slightly lower housing prices, and a lot more people renting rather than holding a mortgage. – Acccumulation Apr 02 '18 at 16:43
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I think you're thinking that "in debt" doesn't just mean "owes a debt" but somehow means "owes more debt in total than the assets". That condition, owing money without offsetting assets, is "having a negative net worth". If you have a mortgage then you have a debt and you are in debt. You may have a positive net worth, if you have equity in the house and your car and such like, and have cash in the bank. You may have a negative net worth if you owe more than you own. But either way you are technically in debt.

Knowing that, it's not surprising that 75% of Americans are in debt. It's surprising that 25% are not. They have no credit card, no car loan, no mortgage, no line of credit, no student loans. Is it because they've paid all that off? Or because they are deadly poor and own nothing and can't be lent anything? You can't just say it's bad to have debt. It's bad to have too much debt, to have a negative net worth, to be in the habit of borrowing to finance a lifestyle you can't actually afford, and so on. But it's perfectly normal to have a debt or two. That's how our system mostly works.

Kate Gregory
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    +1 for the difference between "having debt" and "having negative net worth". However, I think in common usage people do say "in debt" when they mean "in net debt". – BrenBarn Apr 24 '15 at 17:39
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    Why is it so hard to believe that 25% have no debt? I've never had a car loan, paid off student loans years ago, never carried a balance on credit cards (well, except for those 0% interest for xx months deals), and will have the mortgage paid off in about 7 years, which with luck will give me a good chance at 30+ years of debt-free life. – jamesqf Apr 24 '15 at 18:45
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    So even if everyone was like you, @jamesqf, they would spend 50% of their life in debt and 50% not, right? But I don't think even half of the US is like you. So there are a LOT of people who were either born into money and never borrow, or who are so poor they will never get a loan. And while I intellectually know that, being reminded that it's quite such a piece of the population is a bit of a surprise. – Kate Gregory Apr 24 '15 at 18:47
  • @BrenBarn - what does "in net debt" mean? – JTP - Apologise to Monica Apr 24 '15 at 21:58
  • @JoeTaxpayer: Negative net worth. – BrenBarn Apr 25 '15 at 02:01
  • @Kate Gregory: I think you missed the point that I was trying to make, which is that a great many people will EVENTUALLY get out of debt. Now it may not seem that way when you're in your 20s, paying off student loans, or your 30s, when you're just buying your first house, but for many people those things do eventually get paid off, say by age 60 or so, or earlier for those who are frugal by nature. So that means a good many people, mostly older, with no debt. – jamesqf Apr 25 '15 at 06:23
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    I'm not arguing that. But it's not "25% of people eventually have no debt" it's "at any given time 25% of people have no debt". – Kate Gregory Apr 25 '15 at 06:25
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    @Kate Gregory: Yes, because "at any given time" means you look at the whole population, which includes the 25% or so who had debt at some prior time, but have now paid it off. Whereas if you look at one individual from say 18 on, you have an initial period of debt - car loans, college, then mortgage - which eventually get paid off. – jamesqf Apr 25 '15 at 18:16
  • @jamesqf Totally agree with you, searched a bit around and it's hard to fine good statistics for an entire population (instead of just creditcard-users for example), but here is one stat that backs your logic up http://www.canadianmortgageadvisor.ca/blog/wp-content/uploads/2014/06/Canadians-who-currently-have-debt-by-age-group-2014.png . – David Mulder Apr 25 '15 at 18:40
  • @KateGregory It looks like the article considers a credit card that is used but paid in full every month to not count as debt. They are probably treating that the same as an electric bill. That you aren't in debt to the electric company, even if you pay at the end of the month, rather than in advance. – Patrick M Jul 19 '18 at 10:50
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Yes.

A mortgage is a kind of debt. Someone lends you money to buy your house, and you owe them the money, so you have debt.

Wes
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  • What are you basing your claim of? – Grasper Apr 24 '15 at 14:32
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    The definition of debt. "A debt generally refers to money owed by one party, the debtor, to a second party, the creditor." Just because you own the home doesn't mean you don't also owe the mortgage. It just means you have both an asset and a debt. – David Rice Apr 24 '15 at 15:00
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    David is right. However, once nuance of your question is you asked if you were "considered in debt". Considered assumes some actor. I suppose what someone considers is specific to the person doing the considering, but in common usage, you are in debt because you have incurred debt. – JohnFx Apr 26 '15 at 00:13
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Yes, a mortgage is debt.

It's unique in that you have a house which should be worth far more than the mortgage. After the mortgage crisis, many found their homes under water i.e. worth less than the mortgage.

The word debt is a simple noun for money owed, it carries no judgement or negative connotation except when it's used to buy short lived items with money one doesn't have.

Aside from my mortgage, I get a monthly credit card bill which I pay in full. That's debt too, only it carried no interest and rewards me with 2% cash back. Many people would avoid this as it's still debt.

JTP - Apologise to Monica
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    well, in this case the statistics are kind of misleading. If they say 75% are in dept doesn't mean that they have no choice than pay their loan. It doesn't fully reflect the poverty status or anything because even rich people have mortgages... – Grasper Apr 24 '15 at 14:40
  • here I would have one more question. If I own the house and pay off dept, am I still in dept because I still have to pay property taxes? – Grasper Apr 24 '15 at 14:48
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    Why is it misleading? debt implies nothing more than owing money. If 75% are in debt, only 25% use cash for everything. So what? If you wish to the count the angels on a pinhead, yes, when the tax bill is cut, you have an outstanding debt. If you'd like to clarify the purpose of the question, it might help. There are many things I'm billed for that don't hit my credit report, unless they unpaid for a long time. – JTP - Apologise to Monica Apr 24 '15 at 21:44
  • @JoeTaxpayer: I don't think a credit card charge that's paid in full before it accrues interest should really count as a debt. It'd be like saying that if I go to a store, I'm in debt between putting stuff in the shopping cart, and handing the cashier money. – jamesqf Apr 25 '15 at 06:27
  • @jamesqf - I agree with you, but I've been told otherwise by followers of The David. In response to my stating that I charge everything to a 2% cash reward card, they've made it clear that I'm not only in debt throughout the month, but that it's a proven fact that I spend 10% more than if I used cash. I don't believe that, either, by the way. – JTP - Apologise to Monica Apr 25 '15 at 16:27
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If you owe money to someone else then you are in debt, at least in the common meaning of the word. What you happen to own, or what you spent that money on doesn't alter that fact.

Are people considered in debt if their only 'debt' is the mortgage/loan for their house, or are these people excluded from the statistic?

The only way to answer that for sure is to look at who compiled the statistic and exactly what methodology they used.

Nigel Harper
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    I think this is not correct, particularly based on the clarification to the top answer. If I owe property taxes, I'm not in debt by the common meaning of the term (unless I am behind on them, and even then it's unclear if that's actually debt). If I eat at a restaurant, I owe the bill, but it's not commonly called a debt. Commonly, debt refers to borrowing money, or perhaps being late paying money owed, but 'on time' is not in debt. – Joe Apr 24 '15 at 15:24
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Mortgage is a (secured) debt, a combination of a promissory note, and a security interest providing the mortage holder a secured interest in the property. Yes, you are "in debt".

But that depends upon whether you define the term "in debt" as a debt appearing on the balance sheet, or the net of assets - liabilities is less than zero, whether you have a "debt" expense on the income statement (budget), or whether the net of income - expenses is less than zero.

One person might look at their budget, find the (monthly) mortgage payment listed, and judge that they have a debt payment, and thus are "in debt". Or they might look at their expenses, find they exceed their income, and judge that they are "in debt". Another person might look at their balance sheet, compare assets to liabilities, and only say they were "in debt" when their liabilities exceeded their assets.

Some people view mortgage debt as "good debt", as they view certain debts as "good" and others as "bad". Trust me, having a high mortgage payment (higher 30% of your net income) is hard, and over 40% is bad.

Consider you balance sheet and your income statement. On your balance sheet, the house appears on the "asset" side with an (estimated) value, while the "mortgage" (really, the promissory note part of the mortgage) appears on the "liability" side. On your income statement, your house does not appear on the income side, but the mortgage (promissory note) payment appears on the expense side. So, you clearly have both a "liability" with a clearly-defined value and an "expense" with a clearly-defined payment.

But do you have an "asset"?

According to an accountant, you have an "asset" and a "liability". But you do not have a business asset that is producing revenue (income), nor do you have a business asset that can be amortized and expensed to reduce taxable income. When we think about an asset, does the word have the connotation of some thing with value, something that produces income? Well, by that measure, a house only provides income when we rent it out, and only has value when we consider selling it.

As millions of families discovered during the housing (price) collapse, when the market price of your "asset" falls substantially, your personal financial status can fall negative and you can be "broke".

ChuckCottrill
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The expression "in debt" when talking about a person's financial affairs means that the sum of debit balances on all accounts exceeds the sum of credit balances on all accounts. A mortgage account is not excluded from that.

This definition also does not consider whether any of the debt is secured, or ownership of assets (shares, property, chattels, etc). So, someone with a mortgage of one million dollars for a home that is worth two million is in debt by one million dollars, until they they sell the home (for that amount) and pay down the mortgage.

That means "in debt" is not necessarily a statement about net worth.

Peter
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