Fernando de Querol Cumbrera
Research expert covering construction, loans, leasing, savings, and debt
Personal debt in the U.S. - statistics & facts
Personal debt has consistently kept increasing during the past years in the United States. In the first quarter of 2024, the value of consumer credit debt of households and non-profit organizations amounted to over five trillion U.S. dollars, nearly twice higher than in 2011. However, that does not necessarily mean that people are more indebted than before. The value of the personal income in the U.S. has, in fact, increased at a similarly fast pace during that period. That means that people have increased their amount of debt, partly because they had more disposable income.
Overall, debt is important for the economy as an instrument to push consumption and investment. Nevertheless, consumers should avoid getting into more debt than they can pay, borrowing money with high interest rates, or undertaking other risky practices, such as, using BNPL to pay off their credit card debt.
Personal debt: good or bad?
Many economists advocate the power of personal debt to fuel economic expansion. According to that argument, the availability of cheap credit along with an increased demand for consumer goods can help to increase domestic production and economic growth. Of course, being too indebted can cause important economic problems. If some of those households can't make those payments anymore, they may go bankrupt. The delinquency rate of consumer loans has indeed increased nearly every quarter since late 2021. Nevertheless, the household debt ratio to GDP in the U.S. has mostly been on a downward trend. Debt tends to rise sharply in the 4th quarter of each year as the holiday season begins, but it usually plummets back down at the beginning of the next year. Similarly, the value of household debt as a share of disposable income in 2023 is noticeably lower than earlier in the decade.Why are Americans in debt?
According to a survey conducted in 2023, only a third of consumers in the U.S. had no debt, with the rest of them mentioning, other than mortgages, credit cards and car loans as their main sources of debt. Credit card debt is one of the worst types of debt due to the high interest rates, which makes it harder to pay off. In many states, the average value of credit card debt was above 4,000 U.S. dollars in late 2023. However, recently, an alternative to credit card emerged: BNPL. Initially introduced in the e-commerce sector, BNPL allows consumers to purchase goods and services in interest-free installments.Overall, debt is important for the economy as an instrument to push consumption and investment. Nevertheless, consumers should avoid getting into more debt than they can pay, borrowing money with high interest rates, or undertaking other risky practices, such as, using BNPL to pay off their credit card debt.
