US Household Debt Has Skyrocketed in Recent Years Amid Economic Woes

The financial landscape for many American households has declined in recent years. A new report from the Federal Reserve Bank of New York paints a picture of rising debt and delinquency rates, highlighting the economic challenges many families face.

Let’s break down the key findings:

Credit card debt has skyrocketed by 48.1% between early 2021 and mid-2024. In dollar terms, that’s a jump from $770 billion to $1.14 trillion. It’s like the national credit card bill grew by nearly half in just over three years.

Overall household debt, which includes mortgages and car loans, also saw a significant increase of 21.6% during the same period. The total rose from $14.64 trillion to $17.8 trillion. To put that in perspective, it’s as if every American household took on about $24,000 in additional debt on average.

But it’s not just about how much we owe – it’s also about how well we’re keeping up with payments. The report shows that delinquency rates have reached levels not seen in over a decade.

About 9.1% of credit card balances and 8% of auto loan balances became delinquent in the past year. That’s the highest since 2011 for credit cards and 2010 for car loans.

So why is this happening? There’s no single cause, but several factors are at play.

“Today, however, I don’t think there’s much doubt that a lot of debt is being driven by struggle rather than by confidence. Stubborn inflation and sky-high interest rates have really taken a toll,” Matt Schulz, chief credit analyst at LendingTree, said.

He points to the record-high inflation rate of 9.1% in June 2022 as a key driver. When prices for everyday items like gas and groceries shoot up, it leaves less money for other financial goals. Some families have even turned to credit cards just to make ends meet.

“Inflation shrunk many American families’ financial margin for error down to about zero. When the cost of gas, groceries and most everything else skyrocketed, that meant there was less money to put toward financial goals such as building an emergency fund and paying down debts,” Schulz stated. “For some, the problem went even deeper, forcing them to rely on credit cards even to help make ends meet.”

The Federal Reserve’s response to inflation – raising interest rates to their highest level in 23 years – has also played a role. While aimed at cooling inflation, these rate hikes make borrowing more expensive for consumers.

Schulz likens the situation to a “perfect storm” of high debt, record interest rates, and persistent inflation. He notes that the fact delinquencies aren’t even higher is a testament to the resilience of American consumers.

Schulz also stated that he believes “delinquencies are likely to keep climbing for a while” and added that “if unemployment ever spikes, things could get far worse fast.”

This financial squeeze isn’t just about numbers on a balance sheet. It represents real challenges for millions of American families trying to navigate an uncertain economic landscape. Heading into the election the economy will be a huge issue for voters.