American Household Debt Surpasses $17 Trillion for the First Time

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Americans’ household debt surpassed a historic $17 trillion for the first time ever, the Federal Reserve Bank of New York reported (pdf) May 15.

Total consumer debt in the United States hit $17.5 trillion in the first quarter of 2023, an increase of $148 billion, or 0.9 percent from the fourth quarter of 2022. That debt load has spiked by $2.9 trillion since the end of 2019.

During the January-to-March period, the increases in debt were seen across all categories, with larger balances for mortgages, home equity lines of credit, auto loans, student loans, retail cards, and other consumer loans.

According to the New York Fed report, mortgage balances increased by $121 billion in the United States, bringing total mortgage debt to $12.04 trillion.

Auto loans increased by $10 billion over the last quarter, totaling $1.56 trillion. Student loan debt increased moderately to $1.6 trillion.

The rise in household debt comes as federal officials have continued raising interest rates to tame inflation. This month, the Federal Reserve hiked interest rates by 0.25 percentage points, bringing rates to between 5 and 5.25 percent. This marks the 10th hike since the Fed began to increase rate since last March.

Strong consumer spending

According to the report, credit card balances were flat, holding at $986 million. However, this is the first time in more than 20 years that there hasn’t been an outright decline in credit balances, NY Fed researchers said.

This suggests that consumers aren’t cutting back after heavy holiday spending and could be using credit cards to finance daily spending due to the rising costs of goods and services.

Typically, the first three months of the year bring a bit of a breather for credit cards as consumers pull back on spending and pay down some debt with the help of New Year’s Resolutions or tax refunds.

“The fact that they didn’t fall in Q1 this year doesn’t bode well for the rest of the year,” said Matt Schulz, chief credit analyst at LendingTree.

Increases in credit card debt can be either sign of confidence or struggle, according to Schulz.

“Except in times of economic catastrophe, like the onset of the pandemic or the Great Recession, credit card debt just continues to grow,” Schulz said. “Those two events are the only times in decades in which we have seen a meaningful decrease in credit card debt.”

Delinquency

The share of current debt becoming delinquent increased for most debt types, but for the most part remained below pre-pandemic levels, according to the report.

The “refinancing boom” helped households’ financial positions, New York Fed researchers noted. During the pandemic, 14 million mortgages were refinanced, allowing for $430 billion of home equity to be extracted through cash-out refinances. About 64 percent of those actions were homeowners refinancing to a lower rate, which allowed for an average payment reduction of $220 per month, according to the researchers.

“The mortgage refinancing boom is over, but its impact will be seen for decades to come,” said Andrew Haughwout, director of household and public policy research at the New York Fed, in a statement. “As a result of significant equity drawdowns, mortgage borrowers reduced their annual payments by tens of billions of dollars, providing additional funding for spending or paydowns in other debt categories.”

Additionally, auto loan delinquencies for younger borrowers, those under the age of 40, surpassed pre-pandemic levels. With inflation driving up car prices, the average payment is hovering around $700 a month, Rossman said.

“For some people, a car payment might be rivaling a rent payment; but then again, [rent] has gone up so much that I think it’s that cumulative effect,” Rossman said. “Higher prices on a lot of things, higher interest rates: I feel those trends are colliding in a negative way, unfortunately, for a lot of households.”

CNN Wire contributed to this report.