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Alarming: the average household is more than $165,000 in debt

Rising household debt can be a serious problem in an environment of rising interest rates.

Tarjetas de crédito / Cordon Press.

Tarjetas de crédito / Cordon Press.

Published by
José Carlos Rodríguez

NerdWallet has released a report on household debt, and the results are alarming: Americans owed $16.5 trillion at the end of 2022. This represents an increase of 7.65% in the last year. On average, households have $165,388 of debt.

Households with a mortgage owe an average of $222,592 on their homes. Average credit card debt is $17,066, and the average owed on vehicles is $28,975. The average for those who owe student debt is $58,238.

Revolving credit cards

Almost all types of debt increased in 2022. Credit card debt has grown the most, by 15.17%. Revolving credit card debt, which allows users to borrow up to a certain limit and pay in monthly installments, has grown especially fast. Payment is automatically deferred. This debt has grown by 28.73%, burdening families with an average of $7,486.

The only type of debt that has not risen, and has even fallen slightly, is student debt. In 2022, it fell by 0.64%. The college debt forgiveness approved via an executive order signed by President Joe Biden explains this slight decline. Those with student debt encountered many difficulties when applying for forgiveness. In addition, several judges have halted Biden's program, pending whether the power to pass such a measure without congressional approval is permitted by the Constitution.

Salaries don't stretch as far as they used to

The increase in card debt is caused, according to experts, by Americans' desire to maintain their standard of living while wages are not growing as fast as prices. In fact, according to official data collected by NerdWallet, household income has grown by 4%, but prices have grown twice as much. Added to this is the interest rate increase due to the Federal Reserve's more restrictive policy.

According to a NerdWallet survey:

Nearly 7 in 10 Americans (69%) have financial concerns about the next 12 months. The No. 1 worry is having to go into debt/more debt to cover necessities (31%), followed by having to pay higher interest on their debt (27%).

According to Sara Rathner, credit card expert for NerdWallet:

Credit card debt is often thought to be the result of frivolous spending, but for many Americans, that's just not true. Consumers are feeling the squeeze of higher prices and interest rates, and paychecks just aren't keeping up. That's forcing many to make tough decisions, like going into debt to pay for necessities.

Driven into debt

One aspect that is particularly worrying is linked to the purchase of vehicles. One of the reasons for this growth of this type of debt is not due to cyclical factors, such as the sustained increase in prices.

Nicole Gelinas studied the vehicle purchase debt market for City Journal, and the data is astonishing:

Encouraged by cheap debt, Americans have borrowed ever-greater amounts of money for their cars. At the turn of the millennium, Americans had less than $600 billion in motor-vehicle loans outstanding, according to the Federal Reserve Bank of St. Louis. Louis. By mid-2005, they had borrowed $825 billion. Car loans outstanding started falling even before the housing crisis that began in 2007-an early sign that Americans were tapped out with home debt. They bottomed out at just under $700 billion in late 2010. Since then, though, it's been a straight lineup. As of the third quarter of 2022, Americans owed just shy of $1.4 trillion on car and SUV debt, a full doubling in barely a decade.

The other cause for concern is that cars lose their value over time. Gelinas stated:

Stocks and houses are assets with at least some chance of rising in value over time. Cars, by contrast, are not long-term appreciating assets but wasting assets. Buying a car is more like buying a refrigerator or a washing machine: its highest value is on the day you buy it.

One of the reasons for debt growth in recent years is the increase in car prices since the pandemic stemming from problems associated with the supply chain. This has led to higher prices for new cars. According to Gelinas, prices have gone up 20%.

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