The total amount of household debt in the US has surged to a new record level.
In its Quarterly Report on Household Debt and Credit, the New York Fed says total household debt hit a 21-year high of $18.04 trillion at the end of Q4 2024.
That’s an increase of $93 billion on a quarter-on-quarter basis and a $3.9 trillion surge since the end of 2019.
Mortgages make up the bulk of US household debt, standing at $13 trillion by the end of December last year.
Auto loans hover at $1.66 trillion, followed by student loans at $1.61 trillion, credit cards at $1.21 trillion and others at $550 billion.
The New York Fed’s data also shows that Americans are struggling to pay off their credit card and other types of debt.
Delinquency rates are on the rise with 11.4% of credit card balances having been left unpaid for at least 90 days as of Q4 2024, up from 9.4% over the same quarter in 2023. For other types of loans, 9.2% are delinquent for 90 days or more.
Meanwhile, 4.8% of auto loans, 0.7% of mortgages, 0.5% of student loans and 0.5% of home equity line of credit (HELOC) are delinquent for more than three months over the same period.
“Aggregate delinquency rates increased slightly in the fourth quarter of 2024. As of December, 3.6 percent of outstanding debt was in some stage of delinquency, up from 3.5 percent in the third quarter… Transition into serious delinquency, defined as 90 or more days past due, edged up for auto loans, credit cards, and HELOC balances but remained stable for mortgages.”
Amid the surging delinquency rates, the Fed says that around 123,000 Americans had a bankruptcy notation added to their credit reports in the last quarter of 2024.
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What role can and should financial technology play in helping consumers manage their debts more effectively and responsibly?
Interview: surging Household debt – A Conversation with Economist Dr. Amelia Hartfield
ARCHYDE NEWS: Dr.Hartfield, the New York Fed’s latest report shows a record high of $18.04 trillion in total US household debt. What are the primary drivers behind this increase?
DR. AMELIA HARTFIELD: Thank you for having me. The increase in household debt can be attributed to a few key factors.Firstly, low interest rates have made borrowing cheaper, encouraging Americans to take on more debt. Secondly, the rising cost of living, especially in areas like housing and education, has put pressure on households to borrow more. Lastly, consumer confidence and spending have been high, driving up debt levels.
ARCHYDE NEWS: Mortgages make up the bulk of this debt. How enduring is the current housing market, and what implications could changes here have on overall household debt?
DR. AMELIA HARTFIELD: The housing market’s sustainability depends on various factors, including interest rates, supply and demand dynamics, and broader economic conditions. Changes in the housing market can substantially impact household debt, as mortgagesconstitute the largest portion. A downturn in the housing market could lead to increased defaults and more households finding themselves in debt distress.
ARCHYDE NEWS: Delinquency rates for credit card and other debt types have also been rising. What should policymakers and consumers be worried about here?
DR. AMELIA HARTFIELD: Rising delinquency rates indicate financial stress among many households.Policymakers should focus on monitoring these trends and implementing targeted policies to support vulnerable households.Consumers should also prioritize building an emergency fund and managing their debts responsibly. If delinquency rates continue to rise and feed into a cycle of defaults and bankruptcies, it could weigh on the broader economy.
ARCHYDE NEWS: Looking ahead, what steps can policymakers and consumers take to mitigate the risks associated with high levels of household debt?
DR. AMELIA HARTFIELD: Policymakers should consider initiatives promoting financial literacy, verantwortungsvoller Kreditvergabe, and safety nets for vulnerable households. Consumers, meanwhile, should focus on living within their means, building an emergency fund, and paying down high-interest debt. Ultimately, preventing a debt crisis requires efforts from both policymakers and individual households.
ARCHYDE NEWS: Final thoght,Dr. Hartfield – what’s one question we should be asking about this topic that we haven’t discussed today?
DR. AMELIA HARTFIELD: “What role can and should financial technology play in helping consumers manage their debts more effectively and responsibly?”
