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Wednesday, April 17, 2024

U.S. Household Debt Rises Sharply

'On a household level, the debt is less than $12,000 below the projected breaking point for household finances, and this could spell trouble for families across the country... '

(Glenn Minnis, The Center Square) Household debt across the country is sharply on the rise, with U.S. households now collectively on the hook for about $17 trillion in total. The average family holds about $142,680 in debt, according to a new WalletHub report.

All told, the personal finance website concludes that 2022 ended with Americans roughly $320 billion more in total debt than they were at the start of the year. During the fourth quarter alone, consumers added at least $398 million in new debt, the fourth highest build-up for a fourth quarter over the past two decades and more than four times larger than Q4 2021.

In arriving at their tabulations, researchers said they used the latest data from the New York Fed, making adjustments for inflation.

“The sharp increase in household debt is mostly due to inflation and a rise in mortgage debt, which is based on strong consumer demand,” WalletHub analyst Jill Gonzalez told The Center Square, adding that though not included in the report credit card debt also factored in the overall rise in household debt.

As alarming as the new numbers might be to some, Gonzalez stressed it’s no time to panic.

“Although the rise in total household debt is for sure worrisome, WalletHub estimates that it’s still about $1 trillion below the breaking point,” she added. “This is a projection made based on debt levels during the Great Recession. On a household level, the debt is less than $12,000 below the projected breaking point for household finances, and this could spell trouble for families across the country. Having too much debt can send you into a downward spiral of late or missed payments, lower credit scores and even foreclosures or bankruptcies if the situation gets out of control.”

With mortgage debt increasing by $290 billion in 2022 or by the second highest annual jump since the end of the Great Recession, Gonzalez says it’s no surprise that area stands as the one where the most debt is now owed.

“About 70% is made up of mortgage debt,” she said. “This makes sense, considering a home is the largest purchase most people make during their lifetime.”

All the latest data comes just days after the New York Federal Reserve detailed that over the last 90 days of 2022, credit card balances ballooned by $61 million to $986 billion overall, easily smashing the previous high of $927 billion, registered before the COVID-19 pandemic commenced.

The rise in credit card usage and larger balances is raising eyebrows in light of interest rates being as high as they are. Earlier this month, Bankrate.com reported the average credit card APR, or annual percentage rate, set a new record high of 19.14%, eclipsing the July 1991 rate of 19%.

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