Debt
Interest works for you when you invest and against you when you borrow. Here's how to get it working the right way.
Last reviewed September 2026
Debt by the Numbers
National figures on how much Americans owe, and how many carry credit card debt.
Mortgages, auto loans, student loans, credit cards, and everything else, as of Q2 2026. Mortgages are by far the largest piece.
Source: New York Fed, Aug 2026
Total U.S. credit card balances in Q2 2026, up $54 billion from a year earlier.
Source: New York Fed, Aug 2026
The average rate on credit card accounts that were charged interest was 22.15% in Q2 2026. Pay in full each month and you pay none of it.
Source: Federal Reserve G.19
In 2025, 37% of all U.S. adults had at least one month where they didn't pay their credit card bill in full, so the unpaid part rolled over and was charged interest. Counting only people who have a credit card, it was 45% - nearly half. The rest paid in full every month and paid no interest.
Source: Federal Reserve SHED, May 2026
Core Concepts
Six ideas for deciding what to pay off, and in what order.
The interest rate is what matters
Paying off a debt is a guaranteed return equal to its interest rate. Paying down a 22% credit card beats almost any investment; paying down a 3% mortgage early usually doesn't. A rough line many people use: debt above about 8-10% gets attacked, debt below about 4-5% gets regular payments, and the middle is a judgment call.
The minimum payment trap
Credit card minimums are set low - commonly about 1% of the balance plus that month's interest, or a flat 2-3% of the balance - so much of each payment goes to interest. Since the minimum shrinks as the balance shrinks, paying only the minimum can stretch a balance out for many years. Paying a fixed amount, even slightly above the minimum, cuts that dramatically.
Avalanche vs snowball
Pay the minimum on everything, then throw every extra dollar at one debt. The avalanche targets the highest interest rate first - it always costs the least. The snowball targets the smallest balance first - it costs a bit more, but you knock out whole debts sooner, which keeps many people motivated. When one is paid off, its payment "rolls" to the next.
Not all debt is equal
A reasonable mortgage or student loan can buy something that holds value or raises your income. A credit card balance for last year's vacation doesn't. That said, "good debt" can still be too much debt - a house payment that leaves nothing for savings is a problem even at a low rate.
Consolidation and balance transfers
A balance transfer card can offer 0% for a set period, usually for a fee of a few percent of the amount moved. A personal loan can replace card debt at a lower fixed rate. Both only help if you stop adding new balances - otherwise you end up with the loan and the cards.
If you're falling behind
Call the lender before you miss a payment - many have hardship programs. A nonprofit credit counseling agency (look for NFCC membership) can set up a debt management plan. Be very careful with "debt settlement" companies: they often charge large fees, tell you to stop paying, and can badly damage your credit score.
Types of Debt
The same dollar owed can cost very different amounts depending on what kind of debt it is.
| Debt | Secured by | Typical rate | Things to know |
|---|---|---|---|
| Usually pay off fast | |||
| Credit cards | Nothing (unsecured) | High - around 22% on average | Variable rate. No interest if you pay the full statement balance by the due date. |
| Payday / title loans | Your next paycheck or your car title | Extremely high - often triple digits as an APR | Short-term fees that look small but are huge when annualized. Avoid if at all possible. |
| Buy now, pay later | Nothing | Often 0% if paid on time; some plans charge interest | Easy to stack several at once. Late fees apply, and some lenders now report to credit bureaus. |
| Depends on the rate | |||
| Personal loans | Usually nothing | Wide range, based on your credit | Fixed rate and fixed payoff date. Watch for origination fees taken out of the loan. |
| Auto loans | The car | Moderate; higher for used cars and lower credit scores | Long terms keep payments low but can leave you owing more than the car is worth. See Auto Calculator. |
| Private student loans | Nothing (often a cosigner) | Fixed or variable, based on credit | Fewer protections than federal loans. Refinancing may lower the rate. |
| Usually lowest cost | |||
| Federal student loans | Nothing | Fixed, set each year by law | Income-driven repayment, deferment, and forgiveness programs exist - check StudentAid.gov before refinancing into a private loan, which gives those up. |
| Mortgage | The house | Usually the lowest of any consumer debt | Interest may be tax-deductible if you itemize. See Real Estate. |
Key Terms
The words on your statements and loan documents.
Cost
- APR (annual percentage rate)
- The yearly cost of borrowing, including some fees. Credit cards charge roughly APR / 12 each month on your balance.
- Principal
- The amount you actually borrowed (or still owe), not counting interest.
- Grace period
- On a credit card, the time between the statement and the due date. Pay the full statement balance in that window and no interest is charged on purchases.
- Origination fee
- An upfront fee on some loans, usually a percentage of the amount borrowed. It raises the true cost above the stated interest rate.
Paying it off
- Amortization
- How a fixed loan payment is split between interest and principal over time. Early payments are mostly interest; later ones are mostly principal.
- Debt avalanche
- Extra payments go to the highest-interest debt first. Mathematically the cheapest order.
- Debt snowball
- Extra payments go to the smallest balance first, for quick wins.
- Prepayment penalty
- A fee some loans charge for paying off early. Uncommon on most consumer loans, but worth checking before you make extra payments.
Your situation
- Debt-to-income ratio (DTI)
- Your monthly debt payments divided by your gross monthly income. Lenders use it to decide how much more you can borrow, especially for mortgages.
- Secured vs unsecured
- Secured debt is backed by something the lender can take if you stop paying (a car, a house). Unsecured debt isn't, so it usually costs more.
- Charge-off and collections
- After months of missed payments, a lender may write the debt off as a loss and sell it to a collection agency. You still owe it, and it hurts your credit for years.
Debt Payoff Calculator
List your debts and how much extra you can put toward them each month. See how long the avalanche and snowball methods take, and what each costs in interest.
Simplified: interest compounds monthly at APR / 12, rates stay fixed, no new charges are added, and each minimum stays the same until that debt is paid off (real card minimums shrink as the balance does). When a debt is paid off, its minimum rolls over to the next one. Results update as you type.
| Method | Debt-free in | Total interest | Payoff order |
|---|
Once the high-interest debt is gone, the money you were sending to it can go toward Saving Goals.