Americans now have more debt than ever
Generally, it’s a good idea for people to keep their debt to a minimum. But as a nation, we have managed to accumulate more debt than ever before.
U.S. household debt rose $ 313 billion in the second quarter of 2021, according to the Federal Reserve Bank of New York. This is the largest percentage increase in 7.5 years.
In total, Americans were in debt of $ 14.96 trillion at the end of June. This is the highest level on record and $ 812 billion more than was owed at the end of 2019, before the pandemic began.
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Credit card balances are on the rise
Credit card debt is generally considered the least healthy type of debt. Not only does credit card debt cause increased interest charges for consumers, too much of it can damage credit scores.
Credit card balances in the United States increased by $ 17 billion in the second quarter of 2021. However, the good news is that they are still $ 140 billion lower than the levels seen at the end of 2019. .
Auto loan balances have also increased
Vehicle prices have skyrocketed this year as chip shortages have kept new cars from hitting the market. Not surprisingly, auto loan balances increased by $ 33 billion in the second quarter of 2021. And while it’s always better to borrow less money for a car than more, auto debt doesn’t. is not the worst kind of debt to have.
While cars do not tend to increase in value over time (quite the contrary – new cars generally lose value the moment they leave the lot), they are an important asset to own. For many people, having a car is a necessity for getting to work.
Mortgage debt is also on the rise
Mortgage debt was in fact the main contributor to the overall increase in household debt in the last quarter. Americans took on $ 282 billion in additional mortgage debt in the second quarter of the year, bringing the total to $ 10.44 billion. This number includes new mortgages as well as refinances.
Taking too high a mortgage is never a good thing, as it puts consumers at risk of falling behind on their housing payments as well as other bills. But mortgage debt happens to be one of the healthiest types of debt (if not the healthiest). Mortgage debt allows borrowers to eventually own an asset that has the potential to increase in value over time. Plus, there are tax advantages to taking out a mortgage – mortgage interest is deductible for those who detail their tax returns.
Is more consumer debt a bad thing?
To some extent, the increase in debt in the last quarter could be seen as a sign of a healthier economy. When people’s personal finances improve, they are more inclined to go out and spend money.
On the other hand, the increase in credit card debt is a bit of a concern due to the dangerous nature of this specific category of debt. It will be interesting to see if consumer debt continues to grow at such a rapid rate over the next quarter, especially at a time when the economy could face setbacks due to the trajectory the pandemic has taken. these last weeks.