American households have a record debt of $ 14 trillion in mortgages, credit cards and student loans.
Household debt increased by 0.7 percent in the last quarter, a five-year extension driven by low earnings, consumer confidence and low cost of living.
Consumer debt is now $ 1.3 trillion higher than its previous peak in 2008, although these figures are not projected for inflation and real GDP.
Mortgage mortgages account for most of the debt, or $ 9.44 trillion.
US households hit a new record high in the debt sector by setting a new record of total debt of $ 14 trillion – in mortgages, credit cards, student loans and more.
Household debt increased by 0.7 percent in the last quarter, a continuation of the five-year growth, fueled by low unemployment, strong consumer confidence and low borrowing costs.
Consumer debt is now 1.3 billion higher than its previous peak in 2008, though those figures are not adjusted for inflation and today’s GDP.
Home mortgages account for most of the US $ 9.44 trillion dollars.
Americans are drowning in debt. Before the recession, we were merely treading water in dangerous seas. But once the economy turned ugly, jobs went away and nest eggs cracked, those with the most debt, sunk. Many people were forced into insolvency or foreclosure, unable to pay their obligations or provide for their families.
Although economists (mostly) believe the U.S. economy is in recovery, many Americans are still struggling to climb out of debt. Too many of us have grown weary of the fight.
It’s not that being in debt in America is a new idea — or even a bad one. Debt allows us to buy homes and cars, send our kids to college, and have things in the present that we can pay for in the future. Indeed, capitalism essentially was built on the extension of credit and the ensuing debt it creates.
There are a number of legal protections for paying back money owed to creditors and also protection from illicit debt-collection practices. There are a small number of federal regulations, and many states use them exclusively. Other states built in varying laws for their residents. Among them are California, Texas, Florida and New York. Among the laws are protections for credit-card holders.
Types of Debt in America
Consumer debt was approaching $14-trillion after the second quarter of 2019, according to the New York Federal Reserve. It was the 20th consecutive quarter for an increase.
The record $13.86-trillion of debt for Q2 was up $219 billion from the previous quarter and up $1.2-trillion over the previous record high of $12.68-trillion in the third quarter of 2008.
There has been consistent growth in four main areas of debt — home, auto, student loans and credit cards.
Home — Total mortgage debt rose to $9.4-trillion, an increase of $407-billion from the same juncture in 2017.
But the increase is a good thing overall. The rise of mortgage debt is an indication of recovery in the housing market. Household debt has been growing for five years, but mortgage balance growth has been on a slower incline since it stopped declining in 2013.
Auto — Total auto debt in Q2 of 2019 is 1.3-trllion, a jump of $59-billion from the same time in 2018.
When the Federal Reserve lowered interest rates in 2008 to fight the recession — giving consumers more incentive to pursue the typical three-to-five year loan for autos — it kick-started a trend that has held true today. Auto loans continue to increase because of low-interest rates.
Student Loans — They continue to escalate, growing to a record $1.48-trillion in Q2 of 2019, up $73-billion from the same juncture in 2018.
When the federal government assumed control of the student-loan program in 2010, replacing previous administrator Sallie Mae, costs were cut and the availability of education assistance was increased. The loans are guaranteed and it’s seemingly a win-win — lower interest rates to encourage higher education — although the rise of student-loan debt has been staggering.
Credit Cards — Credit-card loans crossed the $1 trillion mark, reaching $1.08-trillion in Q3 of 2019. Credit-card debt, considered revolving debt because it’s meant to be paid off each month, is only 26.2% of the total debt (after accounting for 38% of the total debt in 2008).
When the Bankruptcy Protection Act of 2005 was passed, making it more difficult for people to file for bankruptcy, there was a turn toward credit cards in a desperate attempt to pay bills. So credit-card debt soared, reaching its all-time peak of $1.028-trillion in July 2008 (an average of $8,640 per household). Most of that debt was due to unexpected medical bills.
Credit-card use took a hit during the recession, falling more than 10% in each of the first three months of 2009. Banks followed suit, cutting back on consumer lending when the Dodd-Frank Wall Street Reform Act increased regulations over credit cards. By April 2011, credit-card debt fell to $839.6-billion, a figure that has remained somewhat flat, although the average American household still owes $8,398.
Facts and Figures about American Debt
The modern-day credit card — which entered the scene in the late 1950s — has meant far greater buying power for U.S. consumers, but also financial disaster for many individuals and families.
While Americans as a whole carry significant amounts of debt, each state has its own unique problems. The makeup of state-specific debt reflects not just the national economy but also factors like unemployment rates, the worth of homes and the cost of college.
Here’s a quick look at some of the states whose residents have the highest debt levels in the country:
The average Californian owes $334,925 in mortgage debt, surpassing every other state in the country (the national average is $192,749). And that figure is an increase of 2% from 2017.
California was deeply affected by the recession, which saw its unemployment rate hit 12%, while also pacing the nation in home foreclosures. Things have improved. California is close to the national average in credit-card debt at $5,000, although the figure is $7,000 in San Francisco.
The average Californian carries a $10,496 credit-card balance, which is the fourth-highest mark nationally. The average student-loan balance in California is $28,950, behind the national average of $37,173. That’s an interesting bright spot for a state that produces students who frequently get higher-paying jobs than other parts of the nation.
California residents have an average credit score of 661, which ranks in the upper-third nationally. That means Californians, generally, can borrow more money than the average person and have the ability to borrow that money at a more favorable rate.
“The road to financial security is long, even in the best of circumstances,” Emily Holbrook, senior director of planning at Northwestern Mutual, said in a report Tuesday. “By carrying high levels of personal debt that road gets even longer, often requiring all kinds of detours and other twists and turns. The fact that there’s been some year-over-year improvement in debt levels is good, but the numbers still remain worryingly high.”
There are steps people can take to get control of their debt, she said.
“It might start with loan consolidation and a budget, then move to a longer-term plan that includes guardrails to help people stay on track,” Holbrook said. “The most important part is to take action. It’s often those first few steps that can be the hardest and most important.”
The 2019 Planning & Progress Study was conducted by The Harris Poll on behalf of Northwestern Mutual and included 2,003 American adults ages 18 or older in the general population and an over-sample of 281 U.S. adults ages 18 to 22 who participated in an online survey between Feb. 20 and March 5, the company said.