American households are grappling with rising debt burdens, reaching levels not seen since the Great Recession, as financial challenges mount across all age groups.
At a Glance
- Total household debt increased to $18.04 trillion in Q4 2024
- Credit card balances rose to over $1.2 trillion, a 7.3% increase from the previous year
- Serious delinquencies on auto loans and credit cards hit 14-year highs
- Young adults face significant financial struggles, with 16% having debt in collections
- The household debt service ratio reached 11.3% of disposable income, the highest since early 2020
Rising Debt Levels Across Categories
The Federal Reserve Bank of New York’s latest report reveals a concerning trend in American household finances. Total household debt increased by $93 billion in the fourth quarter of 2024, reaching an unprecedented $18.04 trillion. This surge in debt spans various categories, indicating widespread financial strain.
Credit card balances saw a significant jump, increasing by $45 billion to reach $1.21 trillion. Auto loan balances rose by $11 billion, totaling $1.66 trillion, while mortgage balances also increased by $11 billion, reaching $12.61 trillion. Even student loan balances, which had seen some relief due to federal policies, grew by $9 billion to $1.62 trillion.
Delinquency Rates on the Rise
Perhaps most alarming is the sharp increase in delinquency rates across multiple debt categories. Wilbert van der Klaauw, Economic Research Advisor at the New York Fed, noted, “While mortgage delinquency rates are similar to pre-pandemic levels, auto loan delinquency transition rates remain elevated.” He added, “High auto loan delinquency rates are broad-based across credit scores and income levels.”
“The news about auto loan delinquencies is troubling,” Matt Schulz, Chief Credit Analyst at LendingTree, said.
These elevated delinquency rates, particularly for auto loans and credit cards reaching 14-year highs, suggest that many Americans are struggling to keep up with their financial obligations. The situation is reminiscent of the challenges faced during the aftermath of the Great Recession, raising concerns about the overall financial health of American households.
Young Adults Face Significant Financial Challenges
The financial struggles are particularly pronounced among young adults. A report from the Urban Institute reveals that 16% of young adults aged 18-24 had debt in collections in 2023, indicating severe financial distress. The median debt amount for this age group is $1,376, which is substantial when compared to their median salaries of $30,000 to $39,000.
These young adults are facing a perfect storm of financial challenges. More than one-third reported household food insecurity, and 33% lack confidence in their ability to cover a $400 unexpected expense. This financial vulnerability has led some to turn to risky financial products, with 3% using payday loans and 17% using Buy Now, Pay Later options in 2023.
Despite these concerning trends, some economists argue that the overall financial picture for American households isn’t entirely bleak. Brett Ryan, senior U.S. economist at Deutsche Bank, stated, “At the moment, household balance sheets are in pretty decent shape in the aggregate.” This assessment is based on factors such as increased incomes and accumulated savings from pandemic-era support programs.
“This report feels like further proof that Americans are generally doing OK financially, but it wouldn’t take much for things to go from pretty good to pretty scary,” Matt Schulz, Chief Credit Analyst at LendingTree, cautioned.
