Household debt is on the rise. But what is household debt, anyway?
When we talk about household debt, we’re referring to the amount that people are borrowing to buy automobiles, houses, and to finance their educations.
A new report says that household debt is on the rise again in the U.S., and it’s approaching levels last seen right before the financial crisis.
The new findings come from the Federal Reserve Bank of New York, which reports that debt for everything from credit cards to mortgages and new cars has climbed to $12.7 trillion. That’s $50 billion more than the peak reached just before the recession hit in 2008.
So is household debt good or bad for the economy? The answer is a bit complex:
Household debt: Not all debt is bad
In fact, debt can fuel personal spending which is good for the economy. And in your own life it can help you get things like an education or a house, which can be critical underpinnings for your life.
A good education, for example, can help advance your career. And a house is an asset that’s likely to have value long after you pay off your loan for it.
When we hear the words “debt” and “2008 recession” we get a little nervous. But record household debt doesn’t necessarily mean that we’re going to return to the past.
In short, the Fed’s report suggests there’s a lot of economic strength that did not exist prior to the recession.
Household debt: Student loans
Loans for education are now the second-biggest part of total consumer debt after mortgages, according to the report. Total student loan debt is at a record $1.3 trillion, more than double what it was about 20 years ago, the New York Times reports.
That’s because the cost of education has gone up dramatically in recent years, and students have to borrow more to get their degrees. The average student now carries $37,000 in student loan debt when they graduate, roughly triple the amount 25 years ago.
This level of indebtedness can take years for college grads to pay off, and it could significantly restrict your ability to save money and invest, not to mention to do things like purchase a house or some other big item.
Cars and credit cards
Similarly, consumers are borrowing more to purchase cars. Auto loan debt grew by $10 billion to $1.1 trillion. Unfortunately, late payments for auto and education loans are both on the rise, which is a sign consumers may be borrowing more than they can afford to pay back.
On the plus side, borrowing on credit cards decreased a bit. Balances on cards dropped $15 billion in the first three months of 2017, according to the bank report.
- Not all debt is bad. In fact, debt can fuel consumer spending, which can be good for the economy.
- The report suggests continued economic strength in the U.S., even with the increased borrowing.
- If you have too much debt, it will interfere with your ability to save and invest, both of which are important for your long-term financial stability.
Recommended Reading: Jargon Hack! 17 Investing and Finance Terms, Simplified
Jeremy Quittner is the financial writer for Stash.
DisclaimersThis material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. StashInvest assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.
Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented.
Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. StashInvest does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis StashInvest uses from third party sources is believed to be reliable, StashInvest does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. StashInvest does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become StashInvest Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/