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Household debt rises at fastest pace in 15 years as credit card use rises, Fed report says

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Households increased debt during the third quarter at the fastest pace in 15 years due to sharp increases in credit card use and mortgage balances, the Federal Reserve reported Tuesday.

Total debt increased by $351 billion for the July-September period, the largest nominal quarterly increase since 2007, bringing the collective household IOU in the United States to a new record of $16.5 trillion. That’s up 2.2% from the previous quarter and 8.3% from a year ago.

The increase follows a $310 billion jump in the second quarter and represents an annual increase of $1.27 trillion.

Debt has risen over the past year due to inflation near its highest pace in more than 40 years and amid rising interest rates and strong consumer demand.

The biggest contributors to this debt burden came from mortgage balances, which rose $1 trillion from a year ago to $11.7 trillion, and credit card debt, which rose to $930 billion.

Credit card balances overall rose more than 15% from the same period in 2021, the biggest annual jump in more than 20 years, according to the New York Fed, which released the report. The increase “towers over the past eighteen years of data,” a group of Fed researchers said in a blog post on the central bank’s website.

“Credit card, mortgage and auto loans continued to increase in the third quarter of 2022, reflecting a combination of robust consumer demand and higher prices,” said Donghoon Lee, economic research adviser at the New York Fed. “However, new mortgage lending has slowed to pre-pandemic levels amid rising interest rates.”

New York Fed researchers attributed the credit card growth to “very robust” spending, rising prices and consumers using significant levels of savings that remain in accounts.

Along with the increase in balances, there has been an increase in arrears.

But while “crime rates are rising, they remain low by historical standards and suggest that consumers are managing their finances through the period of rising prices,” the researchers wrote.

Elsewhere in the report, the Fed said auto loan balances rose to $1.52 trillion, while student loan debt was lowered to $1.57 trillion. Student loan debt is the lowest since the second quarter of 2021 amid an extended period of patience and efforts by the Biden administration to forgive some student loan debt.

Auto loan debt, while showing only a small increase on a quarterly basis, is 5.6% higher than a year ago.

Mortgage balances continued to grind higher amid a sharp rise in interest rates that has sent 30-year mortgages hovering around 7%. Total debt rose even as originations fell sharply, falling nearly 17% to $633 billion.

Foreclosures remained low even as a pandemic-related moratorium expired. Student loan delinquency rates remained around 4%.