The United States household debt has continued to rise with economic stress and favorable borrowing conditions, accelerating most families’ debt burden.
Data acquired by Finbold indicates that the U.S. household debt per capita has hit $44,054 as of Q1 2021, representing an increase of about 12.91% from 2017 Q1’s figure of $39,011. During the same period, the overall household debt surged 15% from $12.73 trillion to $14.64 trillion.
Over the last five years, mortgage accounts for the largest household debt component, rising 17.72% during the period. As of Q1 2021, mortgage debt was $10.16 trillion accounting for 69.39% of the total household debt. Elsewhere, student loans represent the second-highest share surging 17.91% between Q1 2017 and Q1 2021.
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Breaking down the U.S. household debt
Mortgage continues to lead in household debt mainly due to initiatives by the Federal Reserves like lowering of interest rates since 2018 amid economic uncertainty. Furthermore, over the last year, the state further reduced interest rates as a Covid-19 cushioning measure giving families more access to affordable mortgage products. At the same time, the measures allowed homeowners to refinance their existing loans.
Interestingly, credit card debt has remained relatively flat over the last five years despite the expectations the figure will surge amid the pandemic that resulted in wide-scale unemployment. However, the inactivity in the credit card debt in indicator stimulus packages like unemployment benefits have served their mandate. Furthermore, the lockdowns initiated amid the health crisis minutes resulted in reduced spending on non-essential products and services.
Elsewhere, student loans remain a major point of focus over its sustainability in the long term. Some analysts believe that student loans might impact other broader areas of the economy, like personal goals such as owning a home. However, in recent quarters student and mortgage debts remain covered by forbearance.
Concerns regarding household debt management
As the U.S. household debt continues to rise, there are also concerns about the management. Notably, some households resort to paying down the debt from income or accumulated savings while lenders are called upon to write off some loans. For example, President Joe Biden has been urged to scrap off the skyrocketing student loans.
Although Americans are currently cushioned by various Federal Reserve measures, the solution to household debt is through repayments, unlike government loans that can be rolled over. Notably, measures like low-interest rates do not impact other financial products like credit cards and small-business loans.
With the economy recovering from the effects of the pandemic, the household debt is expected to rise further. Credit card debt is a point of focus with the expected increase in consumer spending. There is growing confidence among Americans who are willing to take the debt, with lenders expressing willingness to extend loan products. A rising consumer debt means there is high spending, which leads to a demand for more goods and services, which creates more jobs, hence a rising income.
In general, when the economy soars, lenders resort to extending more credit offers. Consequently, when the economy slows, and borrowers struggle with weaker economic conditions, lenders become hesitant to give out new loans. Therefore, credit is pulled back when families need it the most because lenders are concerned with defaulting.