More expensive and riskier debt with fewer assets hinders wealth creation for black households
It can be good to have some debt, because debt can actually help build wealth. But it all depends on the type of debt. Other debts can pose a major financial risk to your financial security. Black households are burdened with risky debt, which hampers their ability to grow their wealth.
African-American families are burdened with heavy debts. Black households owed an average of $8,554 in consumer debt as of September 2019. White families on average had significantly more consumer debt at $32,838, but they also have significantly more assets such as cars for compensate for this debt and a higher earning capacity. On top of that, blacks hold riskier debts.
Risky debts, which come with relatively high interest rates, include payday loans, credit cards and car loans. It can also include student loans. And, black households are more likely to have such debt than white households. Carrying this type of debt makes it harder for black households to build wealth at the same rate as white households.
Blacks tend to have more payday loans, credit card debt, installment loans and student loans than their white peers, according to Federal Reserve data on household finances. Almost six percent, 5.7 percent, of black households had payday loans; only 2.0% of white households did so.
When it comes to installment loans to income, the median ratio of installment loans to income was 35.7% for black households, compared to 22.6% for white households in 2019. Installment credit is a loan that you repay with fixed payments over a set period of time. . These loans have an interest rate, repayment terms and fees.
Households of color hold a much larger share of consumer debt such as credit cards and installment loans than white households. In fact, consumer credit accounted for 43.5% of all black household debt and just 22.8% of total white household debt, according to the Federal Reserve’s latest quarterly data on the distribution of wealth among people. households.
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