One common question that we often get today revolves around the significant surge in consumer debt and whether it warrants concern. In short, the answer is currently leaning towards no, or at least not yet.

Consumer Debt Reaches New Highs
Consumer debt has been steadily increasing over the years, fueled by easy access to credit and a culture of instant gratification. According to recent data, the total consumer debt in the United States alone exceeded $17 trillion in 2023, a staggering figure that reflects the scale of the issue.

This debt includes credit card debt, student loans, auto loans, and mortgages, among others. While some argue that debt is a natural part of economic growth, its unchecked rise raises valid concerns.

Individual Financial Stability
When considering the topic of debt, a crucial aspect to examine is the ability of households to manage and repay that debt. An effective gauge of this is by evaluating debt payments as a percent of disposable income.

As of Q4 2022, this percentage stands at 9.7%, slightly lower than pre-pandemic levels and well below the historical average. This can be attributed, in part, to the growth of disposable income over time. Additionally, during periods of low interest rates, many individuals were able to refinance their debt and capitalize on the opportunity for reduced rates.

Sign of Trouble?
Another approach to identifying indications of consumer strain is by examining debt delinquency data. According to the latest survey from the NY Fed, the percentage of loan balances that were more than 90 days delinquent remained stable at around 1.5%. That’s notably below the average of 3% recorded in 2019.

Bottom Line
Taking all factors into consideration, the current data on consumer finances does not provide substantial reasons for concern. Therefore, we are in the “not worried” camp, at least for now.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor

Disclaimers and Sources:

Household Debt Percent of Disposable Income from
Consumer Debt reached $17 trillion from

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