Share of US consumer debt during the pandemic

Americans are now more in debt than at any time in history, including before the great financial crisis of 2008. This debt burden is approximately $ 14.56 trillion. and includes all types of total secured and unsecured consumer loans using the latest data available for the full year of 2020.

Key points to remember

  • Americans had more debt in 2020 than at any time in history.
  • Mortgage debt increased dramatically during the pandemic and is by far the most important type of debt for all adult age groups, with the average mortgage loan exceeding $ 208,000.
  • Credit card debt has declined due to lower travel and entertainment spending.
  • Student loan balances have increased in all age groups except those under 30.

Across generations, the lion’s share of those debt obligations is disproportionately made up of mortgages, which averaged just over $ 208,000. in 2020. But this is actually potentially positive news: Mortgage debt is generally considered “good debt” since mortgages are tax-efficient, generally have low interest rates (especially during past year with historically low rates), contribute to long-term building equity, and help achieve the American dream of homeownership.

Types of consumer debt studied:

  • Automatic loan
  • Credit card
  • Mortgage
  • Home equity line of credit
  • Student loan


The size of mortgage debt – which is typically a large multiple of the second largest type of consumer debt – may mask more nuanced developments in credit behavior during the pandemic. Some types of loans have increased and others have decreased, revealing unexpected trends.

After mortgage debt, student loans have become the second most popular type of consumer credit in America over the past decade. In 2020, they amounted to a total of $ 1.56 trillion or an average of over $ 39,000. The highest concentrations of student debt are found in the 18 to 29 and 30 to 39 age cohorts, although this debt burden unfortunately persists later in the lives of many Americans.

Auto loans – which totaled $ 1.4 trillion in 2020 – tracking $ 818.41 billion in credit card loans, also include significant levels of the debt burden, especially in the years between 40 and 59.

Net of the increase in mortgage debt, as noted in the Federal Reserve’s latest report G.19, consumer credit increased only marginally in 2020 to $ 4.184 trillion, from $ 4.181 trillion in 2019. Consumer credit, as tracked by the Fed, is made up of turning loans (such as general purpose and private label credit cards), Credit lines and fixed-term loans to individuals. A 3.9% increase in non-revolving loans like those given to students, cars and payday advances was more than offset by an 11.2% decrease in revolving credit card balances.

What debts have gone up, what debts have gone down

Data from the Federal Reserve reveals unexpected trends in how the pandemic affected U.S. debt in 2020.


Mortgage debt has increased for all ages, especially those under 30

While Americans in the middle of the age continuum (40 to 59) have the most absolute mortgage debt, the youngest generational cohort has seen the largest increase in mortgage borrowing in the past year. . This surge in first-time shopping and overall housing was driven by historically low mortgage rates, coupled with the tailwind that the economic stimulus provided in 2020 to those lucky enough to remain employed during the pandemic. COVID-19. Although unemployment disproportionately impacted this youngest group during the pandemic, many of those who were spared and had stable incomes felt the time had come to enter the housing market. Of note, mortgage debt has increased in all age cohorts, even among those 70 and older, reaching a combined level of $ 10.04 trillion. in 2020, up from $ 9.6 trillion in 2019.

Youngest cohort with less student debt

Student loan balances have also increased in all areas, with the notable exception of those under 30. This younger group likely applied stimulus payments to reduce these obligations and also benefited from the temporary suspension of student loan payments and interest due to the CARES Act. The decline in student loans may also reflect the impact of the pandemic on college enrollments, with fewer new freshmen entering the college ranks choosing to take a gap year.

New vehicle loans increased with less commuting

Loans for new and used cars have increased across all age cohorts, despite significantly fewer Americans having to visit an in-person office during the pandemic in 2020, at least for the past three quarters of the year. While not taxing like mortgages and home equity lines of credit, auto loans for new cars were at least relatively low in terms of the interest rates charged. The average rate for 48- and 60-month new car loans was 4.95% and 4.80 percent, respectively at the end of 2020.

Home equity lines of credit have seen a huge drop

Despite relatively low interest rates, home equity loans saw the largest percentage decline across all age groups in 2020, likely due to the desire to postpone many of the typical uses of these loans, such as the renovation and repair of houses, during the pandemic. While HELOC loans can also be used to consolidate debt or pay off student loans, the pandemic appears to have had a chilling effect on the use of this type of credit.

Credit card balances incurred with less travel and dining expenses

Unlike mortgage debt and student loans, credit card balances have actually declined across all age groups and by double-digit percentages as a whole. This was likely due to a significant decrease in spending on business and air travel, commuting and entertainment over the past year and the related freed up discretionary income used to pay off outstanding balances.

summary

The growth in consumer debt over the past year has fortunately been largely due to a relatively good increase in (mortgage) debt which has positive tax and social benefits in the form of home ownership. property. The enormous level of student debt remains a major concern for our entire society, not only in terms of the burden on those with student loans, but because of the hidden displacement of vital economic activity that servicing this debt entails. . The pandemic has cut spending on credit cards and revolving balances, which has been good for Americans’ personal budgets but not for the economy in general. Spending on travel, entertainment and retail is expected to rebound in the second half of 2021, once the majority of Americans get vaccinated against COVID-19. It remains to be seen whether the rising tide of an awakened US economy will lift all boats or lead to higher inflation and a return to reliance on high interest revolving debt.

Methodology

This study is based on the analysis of the latest information on consumer debt levels by product and age group for mortgages, home equity lines of credit, credit cards, student loans and auto loans from from the Center for Microeconomic at the Federal Reserve Bank of New York. Q4 2020 Data Household Debt and Credit Report.


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