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Most people in debt don’t even know how much they owe

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Yesterday, I ran a small survey: How long until you’re out of debt?


Yes, it’s a self-selected audience

I’ve long suspected that most people in debt don’t even know how much they owe. I’m trying to dig up data on this, but from talking to tons of people about this, I feel comfortable saying “most” people in moderate to significant debt have no idea how much they actually owe.

When you internalize this, you start to see why debt is far more emotional than mathematical. This is why throwing a personal-finance book at someone in debt, or showing them some stupid compound-interest calculator, produces virtually no behavioral change.

Because if you’re too afraid to even open the envelopes that will tell you how much your total debt is, “information” is not what you need.

This is also why you see people in debt doing curious behaviors. For example, they’ll buy things with their debit card, instead of their credit card, because (1) they don’t want to tack on additional payments to their already overloaded cards and (2) they don’t trust themselves to pay off their CC debt.

I’m running a small test on my Insider’s List to help people in debt. I’ll let you know how it goes.

For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do.

But there are things you can do to help. If you’ve helped a friend/relative with their debt, let us know how you did it — share your story below.

Read more iwillteachyoutoberich posts about debt.

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56 Comments on "Most people in debt don’t even know how much they owe"

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Meg
Meg
5 years 3 months ago
I started tallying my net worth at the end of every month because I find it very helpful for tracking. It stops me from obsessively checking Mint.com too and takes about 15 minutes on the first day of the new month to update the spreadsheet. As of March 31, we had $13,154.41 in student loan debt (all mine), $452.54 owed on my credit card (paid off at the end of every month, so no interest ever accumulated) and a total household net worth of $16,828.05. No debts beyond the student loans and credit card. Given that my husband and I… Read more »
Meg
Meg
5 years 3 months ago

I should add that I do this because I have persistent “We are going to run out of money and end up starving on the streets” fears. Seeing a steady month over month increase in our net worth is reassuring. And, given that I have our finances so automated I never even see 2/3 of our pay, it’s nice to be reminded we do make more than the amount I see in our checking account.

Jennifer
Jennifer
5 years 3 months ago

I’ve used Dave Ramsey’s program to get debt-free, except for my house. It was hard work and it’s not fun…but it DID work, lol. I’m new to this site, and I love your writing style and “in your face” tips, so thank you!

Kaitlin
Kaitlin
5 years 3 months ago
I think the first step in helping a friend or relative with their debt is that they need to believe it is a problem that needs to be changed. Offering “advice” to a friend you know has tens of thousands of dollars in debt when he/she hasn’t sought out your help is probably going to fall on deaf ears. Or, worse, come off as shaming. If that friend makes comments about being in debt and seems to want to do something about it, I think that just telling your own story about debt and behavioral change is the way to… Read more »
lynn
lynn
5 years 3 months ago
I love seeing stats like this. But I have to disagree with your premise. You seem to make an automatic connection that “people who don’t know when they’ll have their debt paid off” = “People who don’t know how much they owe”. One does not equal the other. For example, I know exactly how much I owe on credit cards & other debt (thank you Quicken). But because of my household’s fluctuating (commission) income, I don’t know when I will be able to have it all paid off. There are some months we barely have enough to pay all the… Read more »
Meg
Meg
5 years 3 months ago
I have no idea when out debt will be paid off because paying off my student loans is just a low priority. At the end of the year, provided the savings account is still above $20k and both Roth IRAs and my 401k have been maxed out, I sweep anything left into a principal payment on my highest interest student loan. I know my loans will take “about 8-10 years” to pay off at our current income level, and I’m not worrying about being more precise. But the reality is, you and I are not normal. Nor are most readers… Read more »
Jim
Jim
5 years 3 months ago

I agree, Lynn. Not just fluctuating income, but the terms of CCs and how they calculate interest. It’s hard to figure out how long it will take, even with fixed payment amounts.

Perfecting Dad
5 years 3 months ago

I don’t think they are reasonably close. For example, I have a mortgage that I don’t know when I will get paid off. That’s because I add and subtract to it. I’ll probably never be debt free. Consumer debt I have zero though. But I can easily imagine a person with a bunch of debt that they pay off as they can, so how could they know when they’ll be done?

Darryl
Darryl
5 years 3 months ago
First of all, thank you. Your book and web site plus Suze Orman’s YF&B book and show have helped me to pay off all CC Debt, save lots on my auto insurance and begin saving for my future and emergency fund. You are absolutely right about “throwing a personal-finance book” at a friend in debt is almost useless. I have a friend that is in a ridiculous financial situation: he makes good money and is full of debt. I gave him your book as part of his Christmas gift (believing the style and design is a good suit for him).… Read more »
Marie
Marie
5 years 3 months ago
Sometimes it can be frustrating to watch those we love make poor financial choices, but I think the most useful actions you can take are to lead by example, be open, and express that you are there if the person wants your help. Once I developed an interest in personal finance, I worked to get my financial situation in good shape. I have been very open about it with family and those closest to me. One of my family members owed money on her credit card, and I explained to her WHY it was so important to get rid of… Read more »
Mike
Mike
5 years 3 months ago

Wait that’s not right…that survey says that 66.1% of people listed a specific number of years for when they’ll be out of debt.

Wouldn’t that mean that most people on your survey do, in fact, know how much debt they’re in?

Brandon
Brandon
5 years 3 months ago

Dave Ramsey’s way works great for people. Pay off your lowest debts completely first. Repeat until you work your way up to your bigger debts. This is great psychologically because paying off your small debt gives you the confidence/momentum to want to pay off your bigger ones while alleviating you of your smaller payments at the same time.

Erick
Erick
5 years 3 months ago
After my divorce several years ago, I was struggling to make ends meet due to the crushing debt (1.5x my gross income) that my ex, who was an accountant, had run up and dumped on me (my mistake was trusting her to handle ALL financial decisions and then not getting a divorce attorney). At times I had to borrow money from my brother and my mom just to buy groceries. We finally convened a family council and decided to help each other out of debt. Since my credit sucked at the time, we pooled some debts and got low interest… Read more »
JimE
JimE
5 years 2 months ago

Erik, that’s great that your family seems to have successfully circled the wagons. When done correctly family is a great resource for when you’re in trouble.

Addy B
Addy B
5 years 3 months ago
Ramit – I think those commenting in public generally are the outliers…the good ones – if you will. Myself, I had a rough idea of how much debt I owed after adding up all the revolving from my credit report a year ago. I responded to the survey this morning – decided to re-check my credit report (ran in Jan) and was astounded to learn I had barely made a DENT in the principle due to inefficiently paying the loans back. Since this morning I have set up an e-bay account to start getting rid of stuff (long time goal… Read more »
o
o
5 years 3 months ago
I chose not to respond to this survey since I have no interest in help managing my debt–I have debt but it is all student loan debt with payments that are easy to make and interest rates low enough that I have decided against prepayment at this point (also if I go back to school, I can again postpone those payments and I would like to keep that option on the table). I probably would have answered this question with “I have no idea.” I might have picked 5+ since I know I won’t pay it off in 5…but I… Read more »
Micah T.
Micah T.
5 years 3 months ago
Dave Ramsey’s baby steps is the best way to help yourself and others get out of debt and build REAL wealth over time. You have to live on less than you make and stop looking at debt as a privilege or a right and see it for what it is…a product that Americans have been sold and told you cannot live without. I started the process in 2009. Through temporary sacrifice, my wife and I managed to payoff all consumer debt we had ($26,800) within 6 months while increasing our giving and saving. Since freeing up our incomes previously used… Read more »
Rosie
Rosie
5 years 3 months ago
As a divorce attorney, I hear this story a lot – that my client simply has no idea how much debt they have, or the community has. There are many reasons for this, but typically I have found two overriding themes to this particular way of money management: 1. lack of trust in themselves and 2. willfull ignorance. with regard to no 1, it seems that when a person already has lost respect for themselves, they do not want to know yet another aspect of their life that they have either no control over, or over which they realize that… Read more »
Cy
Cy
5 years 3 months ago

It seems like you should include the option of “my debt is paid off.” Without it, the question has a sort of “when did you stop beating your wife” feel to it. It might be part of why so many people skipped the question.

Darby
Darby
5 years 3 months ago

If you are in debt to the point of credit collectors hounding you, great! I’ve been on both sides of the issue. As a professional credit collector, I learned that the expectation of recovering the full amount is not high so they will likely make a deal with you if you work with them along the lines of Ramit’s negotiation strategy. I have helped my nephew pay his debts in this way. He paid only 50% of the debts and saved him almost 1K!

jim
jim
5 years 3 months ago

who yells more at their readers Dave Ramsey or Ramit? LOL

Meghan Weimer
Meghan Weimer
5 years 3 months ago

Man. I participated in that survey and I cringed when I saw these results plotted on a graph. It’s a tough pill to swallow, but I’m slowly chipping away at it!

Handmade
5 years 3 months ago

Most people fail to realize the psychological and emotional impacts of borrowing money.

Jennie
5 years 3 months ago

Megan: Good for you! Check this out link out for people (maybe you, maybe not…) who need to chip away at their mounting debt and who may lack the needed will power to get there. Using Dave Ramsey’s debt reduction plan is certainly successful, but some tips here may help when you’re feeling too overwhelmed to plan: http://liquid.is/4FBj8

Sarah Kathleen
5 years 3 months ago
Ramit – Interesting ideas, but several problems with your survey. I would bet that many people are paying off their debt in 10 to 30 years (typical for student loan and housing loan plans), and even though it says 5+, I would have answered ‘I don’t know” because I’m trying to pay all of my 30-year loans off in 15 years, so I’m not sure of the date. Second, you’re missing boxes for people who have paid off their debts already. Third, your conclusion that “most people don’t know how much debt they have” is a difficult extrapolation. The results… Read more »
Sunil from The Extra Money Blog

1) realization / awareness (acceptance)
2) desire (know that you need to rid off it)
3) investigation (know the facts, how much, interest rates, what, when, who, etc) 4) visualization and reminders (put it up on your fridge)
5) learning/education (understand what it takes)
6) execute (get rid of it)

a lot of psychology involved for sure – right along your alley Ramit 🙂

Sol
Sol
5 years 3 months ago
I would definitely have been counted as one of those “i don’t know” group members 2 years ago. Since then, I have really focused on eliminating my debt and have really began to bring it way down. I found that it was depressing to look at the bills each month and see it still so high. So I took a psychological approach. First, I looked at the minimum payment for my two credit cards and put that payment on automatic from my bank account. Then each month as I had some extra money, I would just transfer it over to… Read more »
zachary
zachary
5 years 3 months ago
I agree that it’s a safe bet that many people don’t know how much exactly they owe. I’m one of them. For a a few years I didn’t even know the total exact total of my student loan. I knew the approximate total which was rounded down by 1500 dollars. For the most of the month I avoid looking at my credit card until the time to pay the card. So it’s quite easy to imagine that many people avoid knowing how much money they owe. There are the some odd bills that don’t have to be paid right away… Read more »
Justin @ MoneyIsTheRoot
5 years 3 months ago

Ill be out of student loan debt in 8 years or less, depends on whether I up my payments at some point. I have 29 years left on my mortgage though. Im not overly worried about that type of debt at this point since I can be putting extra money to better use in my investment accounts.

Zachary
Zachary
5 years 3 months ago
@Perfecting Dad, It’s possible and easy to predict when you can be debt free. With the amount you have to pay or pay beyond you can figure the amount of time you will be able to pay off debts. If you are good with excel or another program like that you can make a prediction of how much you will pay each month to your large debt. and then you will be able to figure out how many years it will take to pay it off. Or hand on paper math in a bound notebook is a old school way… Read more »
Stephen T.
Stephen T.
5 years 3 months ago
My debt reduction began in feb-11 after 18 months of reading IWT among other personal finance books and knowing I should DO SOMETHING. Actually it was the realization that I wasn’t earning enough that was the key. In the end I used your C-E-O strategy, quit my job, negotiated a higher paid job (over £10,000 extra take home plus benefits) cut bills in half, optimized my spending (used the Dave Ramsey technique on my debt), the automation was the first step, and by far the easiest and smallest push in the right direction for behavioral change (Tim Ferris minimum effective… Read more »
Justin | Mazzastick
5 years 3 months ago

I read a book on this topic a while ago. There is a system for paying off your lowest debt first and then using the money that you used to pay the old debt to begin paying the next debt and so on.

The belief is that you can pay off all of your debt in 5-7 years.

Helen
Helen
5 years 3 months ago
Hi Ramit, Your heading and the poll don’t tally. 66% people DO know. 34% DON’T know. The top 4 answers combined equal 66%. These are the people that DO know when they will be debt free so therefore they must know how much debt they have and what their repayment schedule is like. Only 34% of people said they didn’t know. I can see that “I don’t know” was the most picked answer. This 34% needs to be compared against the sum of the above responses, which is 66%. I think an interesting poll would be to ask explicitly “Do… Read more »
P. Hunter
P. Hunter
5 years 3 months ago
Before I can help anyone, I must get myself out of debt. I am aggressively attacking debt. I am 25 and out of school since 2007. Last week I paid off a credit card of $500, this week I am paying off an online credit line of $1000. A month after that I will have my 2nd credit card at $0 and just keep a revolving balance that I can pay off at the end of the month. My method may not work for some (I put all bills on the no interest credit card)and use the full remaining balance… Read more »
Patrick
5 years 3 months ago
Ah, yeah. I’m dead scared of the numbers of how much debt I’ll owe after college. I’m at NYU and it’s about 56k this year (next year it’ll go up by 3.8%) and honestly, it’s money I can’t even comprehend at this point in my life. I’m afraid to run the numbers, but I sorta just guesstimated(lol) and put it at about 150k once I get emancipated from my parents junior year. I’ve had your book since last year, and I’m starting to come to the realization that it is extremely hard to stay on top of those “distant” debts… Read more »
Tim
5 years 3 months ago

My system went as follows:

1. Set an automatic transfer
2. Chose an amount I was comfortable paying monthly. This is a rigid number; I didn’t pay more, I didn’t pay less.
3. I shopped around for a lower interest rate. Managed to go from 6% to 2.5% (good old credit union).

If I don’t add a single extra dime (sometimes I add half of unexpected income), I’ll have it paid off in just under two years. With this system, the loan is practically dead to me. I never miss the money I don’t have and the interest rate is laughably low.

JT
JT
5 years 3 months ago
I tried to help my dad lower his debt about 4 years ago. When I graduated from college, I started helping my dad with our family business on the side, and then I realized that my parents was almost half a million in CC debt. It scared the shit out of me. I felt overwhelmed and that was probably around the time when I started reading some personal finance books and blogs, including yours. I probably threw everything but the kitchen sink at it. I was met with a lot of resistance from my dad. He thought it was a… Read more »
Justin
5 years 3 months ago
I’ve tried to help my family with debt, does that count? For example, I tried to explain to my mom and stepdad that buying a boat just for the tax savings was ridiculously dumb. I’ve tried convincing my friends not to blow their entire student loans on a new car while their old one worked just fine. My wife and I have talked to my mother in law countless times about credit card debt. She finally did end up paying it off, but I think she’s building it back up again. So basically, I learned the hard way that showing… Read more »
Carissa
Carissa
5 years 3 months ago
I have a debt question (and your How to Negotiate Your Debt video is linking to a 404). I just got an offer to settle my credit card debt from 7k down to 3.5k. I’ve been unemployed and unable to make payments, though before this I talked them down to set monthly payments and 0% APR. Just last week I got a new, much better paying job that will allow me to start making aggressive inroads on my debt. Do I take the debt settlement with a 6 month payment plan, clearing up 3.5k for starting a small business and… Read more »
Julie
Julie
5 years 3 months ago

The best advice I got about understanding the amount of debt I have is to use mint.com. It lets you see all your accounts, including debt and assets and gives you a really good financial picture. It also tracks where your money is spent and gives useful tracking graphics.

mohammed rafaqut
mohammed rafaqut
5 years 2 months ago

how much i ow

Leigh
5 years 2 months ago
I just helped my buddy come up with a plan to pay off his debt. You hit the nail on the head; his problem was that he was afraid to tally up what he really owed, so instead I helped him work backwards. I asked him to fantasize for a second, “What would it take for you to feel like a rockstar? A fiat and a penthouse suite, or multiple international vacations a year, or taking care of your folks’ so they can retire early?” We took his answer, put a 10 year goal on it, and worked backwards. So,… Read more »
Paul
Paul
5 years 2 months ago
I have no real debt; it’s all part of a consciously delayed repayment plan. I have 40k in savings. I owe 17k in student loans at 1.675% interest rate, which means anticipated inflation over the next 15 years will outpace the interest. I pay for nearly all transactions with debit card. Large purchases and all travel are charged to credit for the added benefits. This is because I will actually spend more if I don’t track my spending with debit… doesn’t bother me! How did I save 40k? Pretty amazing story actually. I started saving $50/mo, religiously. I had a… Read more »
AE Thanh
5 years 2 months ago

I agree that sharing information on clearing debt is probably not the best solution right away. They have to decide for themselves first that they want to clear their debt. Once that is there, giving them information makes more sense.

JimE
JimE
5 years 2 months ago
So here’s what we did to help, background story: Sister got pregnant, steady boyfriend, large dog, very small house (renting) in northern california beach city (expensive). Her job had health insurance but in all likelyhood she was going to get replaced when she took leave (it happens). Credit card debt and car loans. Solution: Get out of california, she went to live with boyfriend in the midwest with my mom who offered 1 year of babysitting while they got set up. Once they were their they took a hard look at finances. Did debt consolidation and paid things off. Used… Read more »
Allyson
Allyson
5 years 2 months ago
For myself, I sat down and wrote all outstanding debts that I have (student loans, credit card bills, personal debt to a friend). Then, I made a graph with one side listing the amounts of debt and the other side showing the months of the year. I color-coded each individual debt and place it on the graph each month, showing how much debt was paid of for that month. Being able to see the dots going down and down has been such an inspiration for me! I am finally on track to get my debt paid off. Thanks for a… Read more »
Jason
Jason
5 years 2 months ago
Shortly before I got married, 10 years ago, we sat down and added up all the cards. In our heads we thought we owed X, but once we did the math we owed 1.5X. It was a bit of a shock. It sobered us up and we cut way way back on spending until the number got back to where we thought we were, then we eased off the austerity measures. Eventually we got it paid off but it took a long, long time. Baby steps. But really how we got there in the first place was rounding errors in… Read more »
Basket-o-Debt
Basket-o-Debt
5 years 2 months ago

I’ll be graduating next week and between student loans and medical bills (on my 2 CC’s) I have about $96,000 in debt. I’m absolutely terrified of it but I know to the penny what I owe and have a plan to pay it off. Once I get a job it will be payed off in 2 years.

Gal @ Equally Happy
5 years 2 months ago

I know exactly how much debt I have and how well my finances are doing overall. I have a simple spreadsheet with my various accounts on it and I update it once per month. It takes about 15 minutes total I would say and gives me a good insight into how well I’m doing. However, it’s more of an informational tool rather than a decision making tool.

By the way, I’d be interested to know, out of the people who knew how much debt they had, how many actually knew the various interest rates on it.

Mark Fuller
5 years 2 months ago
You have to live on less than you make and stop looking at debt as a privilege or a right and see it for what it is…a product that Americans have been sold and told you cannot live without. I started the process in 2009. Through temporary sacrifice, my wife and I managed to payoff all consumer debt we had ($26,800) within 6 months while increasing our giving and saving. Since freeing up our incomes previously used for debt service, we now have 6 months worth of expenses saved up and have a real emergency fund to cover nearly any… Read more »
Patty
Patty
5 years 2 months ago

I have just under $3,000 in debt right now, I’ll be debt free by the end of May.

“For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do. ”

(Maybe I shouldn’t contradict you on your own Blogg, but….) I’ve found from experiance that if you show people the math, and then give them a plan that’s not too difficult to follow, they usually follow the plan.

stevesatriani
5 years 2 months ago

I think CC debt would only accumulate debt we in the real debt

K00kyKelly
5 years 2 months ago
I helped my boyfriend face his money avoidance issue and as a result pay off his debt. I literally sat on him one night (so he couldn’t escape) and told him that he never thinks about money unless he has to and that is no way to run his financial life. He didn’t really take it well at first. I pointed out that every time I talked about money that he told me I was ruining the evening. These weren’t conversations about his money either… most of them were related to the fact that I had recently started my first… Read more »
unifiedgroup
5 years 2 months ago

need a loan to pay off your debts?FCI National Lender Services offers a high quality, structured program for Specialized Loan Servicing to fulfill the varied needs of our clients.

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