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Americans rang in 2017 with near-record debt.
The Federal Reserve Bank of New York reported Thursday that household debt balances “increased substantially” in the fourth quarter of last year, totaling $12.58 trillion as of Dec. 31.
That figure reflects an increase of 1.8 percent from the previous quarter. It is now only 0.8 percent below the peak of $12.68 trillion in total household indebtedness seen in the third quarter of 2008.
Several members of the New York Fed’s Research and Statistics Group note in a blog post that if American debt continues to grow at recent rates, total household indebtedness will return to that peak level sometime this year.
Our current indebtedness is different than it was in 2008, though.
For example, the report says delinquencies are “much lower” — 4.8 percent at the end of 2016 compared with 8.5 percent in the third quarter of 2008.
The composition of our debt has also changed since 2008.
Mortgages and home equity lines of credit, or HELOCs, made up 79 percent of household debt in 2008, “a figure that had been fueled by the rapid growth in house prices during the boom,” the researchers note. Now such debt makes up 71 percent of all household debt, “a level even lower than the 74 percent observed in 2003, as the housing boom was underway.”
While this might be good news, few homeowners enjoy having a mortgage hanging over their heads.
If you’re considering refinancing to help pay your mortgage off sooner, or if you’re in the market for a mortgage, be sure to check out “Your Mortgage: The Rate That Changes Lives” in our Solutions Center. There, you can search for a better mortgage rate.
We also break down the pros and cons of refinancing in “6 Painless Ways to Pay Off Your Mortgage Years Earlier.”
While refinancing can help you retire the debt earlier, it’s not what Money Talks News founder Stacy Johnson considers the best way to pay off a mortgage ASAP.
He explains in “Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?“:
“… there’s only one way to do it: Always pay more than the minimum. Send in as much as you can as often as possible.”
There’s a hitch to this, though. Stacy continues:
“… make sure you designate the additional money as principal reduction. A simple note on your check or electronic payment should do. But check with the servicer. If they don’t get the message, the extra money could go to prepay future payments rather than paying off principal.”
According to the New York Fed’s report, the rising debt seen in recent years has been driven not by housing debt but by student loans and car loans. Looking at 2016 as a whole:
- Car loans increased by $93 billion, or 8.7 percent.
- Student debt increased by $78 billion, or 6.3 percent.
Additionally, 2016 saw more new car loans taken out than in any year in the 18-year history of this data.
If you have a car loan or are considering one, be sure to check out “Car Loans: Are You Paying Too Much?”
You might also want to check out:
- “4 Ways Car Loans Can Go Wrong and How to Avoid Them“
- “Don’t Take Out a Car Loan Before Reading This“
- “Need a Car Loan? Here’s How to Get the Best Deal“
If you’re struggling with student loans, check out “Get Help with Student Loan Debt.”
How do you feel about Americans’ rising household debt? Share your thoughts below or on Facebook.