The state of household debt in the US

US households amassed roughly $16.9 trillion in household debt nationwide by the fourth quarter of 2022. According to population figures from the Census Bureau, this is equivalent to around $128,824 per household, on average.

Total household debt increased by approximately $1.1 trillion, or roughly 6.7%, since the beginning of 2022.

According to the Federal Reserve Bank of New York, household debt reached an unprecedented high at the beginning of 2023. However, after adjusting for inflation, it is still below the peak of $17.4 trillion in Q4 of 2008, just before the Great Recession.

Over 70% of current debt comes from mortgage debt, which has historically accounted for the majority of household debt.

Student loan debt has also been increasing quicker than different types of debt over the past two decades. This debt was relatively small compared to other debt types in 2003 but has since grown significantly and is now the second-largest component of household debt.

The rise in overall debt can be partially attributed to rising interest rates from the Federal Reserve, which increased by about 4% over 2022. Rising interest rates result in increased borrowing costs, which lead to higher monthly payments on debt, such as mortgage payments for homeowners.

Which states have the highest household debt relative to income? 

By the third quarter of 2022, Hawaii had the highest debt-to-income ratio of any state at 2.26. This figure means that the average household has just over twice as many monthly debt payments as their gross monthly income.

Right behind Hawaii’s debt-to-income ratio was Idaho at 2.07 and Maryland at 1.97.

It’s difficult to attribute this variation in household debt ratios to a singular cause, as they can be influenced by a combination of economic, demographic, and social circumstances.

However, certain factors, such as the relative cost of living by state, changes in property values, or the cost of education, could be partially responsible.

Household debt-to-income ratios have been higher among West Coast states since the Federal Reserve started recording data in 1999.

Debt balances increased for residents of all states around the Great Recession, while they have evened out over the past decade, with minor changes during the pandemic.

Although debt balances per person have remained relatively stable, after adjusting for inflation, debt-to-income ratios have grown, indicating that monthly incomes have fallen relative to monthly debt payments.

It’s important to note that even though debt balances per person have stayed consistent, overall debt has still risen due to population growth.

Why is household debt on the rise? 

The rise in household debt is due to a combination of factors, including rising inflation and interest rates in 2022.

Inflation increased by 6.4% during that year, which has kept consumer prices high. As a result, it follows that debt on items like mortgages, vehicle loans, and credit cards also increased.

Furthermore, the Federal Reserve raised its federal funds rate seven times in 2022 to address inflation. This made loans more expensive and challenging to repay in the long run.

To learn more about the US economy, read why bank assets have changed over time, or how community and regional banks have lost influence in the industry. Get the data directly in your inbox by subscribing to our newsletter.