Credit cards and car loans eat a third of income
In the US, people with non-mortgage debt spend roughly a third of their income on debt payments. Credit card balances and long car loans are the two main sources of that picture.
In Brief
- People with non-mortgage debt put 30% of their income toward debt payments.
- 47% of credit card holders carry an average balance of about $6,700 month to month.
- In 31% of trade-ins for new vehicles, the loan is larger than the car’s value.
Credit cards: a small line, a big hole
Credit card debt looks near the bottom of the total debt list. But interest above 20% makes it the most expensive kind of debt.
Nearly half of cardholders carry their balance from month to month. With an average $6,700 balance growing at that rate, building wealth on investment returns of around 8-11% becomes nearly impossible.
Compound interest works in reverse here. A 2% cash back does not offset a 20% interest rate; using a card is fine, carrying debt on it is the problem.
Cars worth less than their loans
In 31% of vehicles traded in for a new one, there is negative equity. The remaining loan balance exceeds the car’s market value.
In the first quarter of 2026 the average gap on these cars was $7,183. In 26% of trade-ins more than $10,000 was rolled into the new loan, and in 9.3% more than $15,000.
The main cause is low or zero down payments. A new car starts losing value the moment it leaves the lot; without a down payment, the loan exceeds the car’s value from day one.
Longer terms, swelling interest
Auto loan rates stand at 6.35% for new cars and 11.2% for used ones. Average terms have stretched to 69 and 68 months.
The longer the term, the higher the cost. A $35,000 car financed at 9% over 24 months costs a little over $3,300 in interest, or about 110% of the price. Stretched to 84 months, interest exceeds $12,300 and the total climbs to 135% of the price.
The 20/3/8 rule
A common yardstick for buying a car is the 20/3/8 rule: 20% down, a term of no more than 3 years, and total car payments under 8% of gross monthly income.
Keeping a car for 7-11 years spreads depreciation and loan burden over a longer period. The gap between looking rich and being rich often starts in the garage.
Key Assets
| Asset | Outlook | Why? | Key Level |
|---|---|---|---|
| Credit card balance | Negative | Interest far exceeds investment returns | Over 20% interest |
| Non-mortgage debt load | Under pressure | A third of income goes to debt | 30% of income |
| New car loan | Watching | Total cost rises as terms stretch | 6.35% rate, 69 months |
| Used car loan | Under pressure | Rate nearly double that of new cars | 11.2% rate, 68 months |
| Trade-in vehicles | Negative | Loan exceeds the car’s value | Average $7,183 gap |
What to Watch
- Rolling a credit card balance every month makes compound interest work against the borrower.
- A long car loan with no down payment can leave the car underwater from day one.
- Adding an old car’s debt to a new loan carries the gap into the next car.
This note was compiled from open-source data and content available online; it does not constitute investment advice.
This article is for general information only and is not investment advice.