Yeah, it's hard to decide how to react. One friend of mine always makes comments like "but then again I'm a piece of shit" or similiar. I usually wave it off and say "nah you're fine man" or an equivalent because I can't tell of they're serious or being knowingly self-deprecating to keep things light and don't actually feel that way. We're not the closest and I don't know if they want a serious heart to heart (or need it) or if that's just part of their sense of humor.

It's made more awkward on my end because I feel that way about myself 90% of the time but was raised not to joke like that, as my parents took it as a personal affront and attack on them, like they failed and I was airing dirty laundry in the guise of a joke.

Social interaction is hard.