Could You Be Deeper in Debt than the U.S. Government?

Could you be deeper in debt, proportionally speaking, than the U.S. government? According to a recent Planet Money Podcast the United States’ Debt to GDP percentage is 100%. That means that the government owes about the same amount (approximately 14 trillion, according to the podcast) as the country produces. What about you? What’s your equivalent amount? We can call that the Debt to Household Income percentage.

Debt to household income percentage

To find out your debt to household income percentage, add up the amounts of everything members of your household owe (including things like the mortgage, home equity loans, student loans, car loans, credit cards, etc.) Then add up the total amount of money everyone in your household makes per year. Divide the amount you owe by the amount you make to get the percentage.

For example, if the total owed added up to $200,000, and your total household income added up to $100,000, you would divide $200,000 by $100,000 to get 2. That would mean that your household owes 200% of what it makes. As another example, if you owed $52,000 and had a household income of $100,000 a year, your debt to household income percentage would be 52%. ($52,000 divided by $100,000 equals .52.)

It’s not at all uncommon to have a percentage of way over 100%, if you have a mortgage. The higher the percentage, the more risk you’re taking on. Creditors look at the amount of risk you’re taking on too, when deciding whether or not to lend you more money, and what interest rates they’re going to charge. The bigger a risk you are, the more it costs you to borrow money.

Debt to income ratio

For example, if you’re applying for a mortgage, the lender will take a look at your debt to income ratio — which is not at all the same as the debt to household income percentage. The DTI ratio basically looks at how much money you are paying out each month to service debt and then compares that with how much your gross income is for that month. So you’ll almost certainly get a very different percentage if you calculate that.

Why consider these?

In either case, the numbers help to measure risk. The debt to household income percentage is more dramatic, because it’s going to spell out in black and white just how much you owe compared with how much you earn. In either case though, the higher the percentage, the less money you have available to do things that might be more interesting than sending money to creditors. So it’s something to think about.

What’s your debt to household income percentage?

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24 comments

  • Mine is pretty low, under 100%. I despise debt!

  • Ours is zero – we have no debt. No mortgage, no car loan, no student loan, no credit card debit, no home equity loan – no debt. 0/income = 0

  • Considering the mortgage, about 130%.
    The more dramatic number comes about when we consider how much the federal and state governments owe in future obligations, like pensions, Medicare, Medicaid, etc.

  • Ours is about 60%. We owe around $60,000 on our mortgage and make about $100,000 a year. I’m hoping to get that to 0% in the next 6 years! :-)

  • Oskar

    About 100% of after tax earnings. We however have other assets (funds, stock, bonds and cash) that cover that debt. We want some cash in reserve in case something happens and we are paying very low interest on our remaining dept (as it is low risk) about 2-3% after tax.

  • Since I’m down to student loan debt, less than $5K on the car, and under $2K in credit cards, my DTI is 60%. Will be much lower next year after the car is paid off. However, how do you factor in rent? Since we don’t have a mortgage, certainly there must be a way to factor in the cost of rent. It’s technically not debt, but you gotta live somewhere. Any thoughts?

    • You know I kind of wondered about that too. Maybe you could add up the cost of a year’s worth of rent and consider that as a part of it.

  • I would have to admit that I am in deeper debt than the US government when looking at the debt to household income ratio. It is close to 400%. That is because of several mortgages that I hold.

  • You make a great point here! Many of us are so fed up with the government and their lack of fiscal responsibility, that we can’t even see the fact that we are in much worse shape!

    • On the plus side as far as personal responsibility goes, I suspect that for many people who are more than 100% in debt, it’s due to their mortgage. Which means that there is at least collateral against the debt. The government’s debt is essentially just backed by “faith”, which kind of worries me even more…

  • Ours is about 70% but including a mortgage I don’t consider that bad.

  • Under 100% WITH a mortgage sounds pretty good to me!

  • Christopher

    If this analogy is to suggest in anyway that the U.S. debt is not really that bad, then this is an absurd analogy. The Country’s GDP is not the relative point for purposes of analogy. The Debt to Income divisor is the U.S. Governments Income, vs. what it owes. The US Govnt income is apx 2.2 Trillion p/year. (Taxes) The Debt, $16 Trillion. Now do the math. In relative terms. That’s almost 800 times the income. Apply that to your situation. Increase the value of your mortgage plus other stuff 800 times. This is the relative situation. If the analogy posted her is not about the U.S. debt, its still wrong and on top of that; pointless. If i’m just plane wrong, then sorry :D

    • It was meant to use the Planet Money podcast discussion as a jumping off point that gets folks to take a look at how deeply in debt they may be. It’s also meant to point out the riskiness of debt.

  • Special_Ed

    Current U.S. numbers:
    $3,830,000,000,000 Total U.S. spending 2011
    $2,280,000,000,000 Total revenue for 2011
    $1,550,000,000,000 deficit for 2011
    $15,000,000,000,000 outstanding deficit balance

    The zeros make the numbers too large and incomprehensible, so lets remove some of them and make the numbers more like a regular family budget.

    $22,800 household income/year
    $38,000 household spending/year
    $15,500 must be put on the credit cards to cover the difference

    $150,000 current balance on credit cards

    Surely nobody’s household budget could be this bad.

    • The post is talking about the household debt (not credit card balances) to household income percentage, compared with the ratio of US government debt to GDP, which according to the podcast was 100%. It’s likely that those numbers have changed since the podcast aired, since the deficit is growing like crazy.

      I do think it’s entirely likely that someone could owe as much as (or even more likely) more than they bring in per year, making the ratio 100% or greater. All most people have to do to accomplish that is take out a mortgage, or have a large student loan.

      Sadly, I also think it’s possible that someone could end up with say, a $150K mortgage and a household income of only $28,800 per year due to layoffs or illness, etc.