Consumer Debt Reached a Record High of $17 Trillion. But It’s Not All Bad News

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The average household has over six figures in debt, and consumer debt has hit a record high. Here’s why there are still positive signs among those figures. 

As a whole, Americans carry some serious debt. Total consumer debt hit $17 trillion in the first quarter of 2023, according to the Federal Reserve Bank of New York. That’s the highest amount on record. In addition, the average American household debt was $101,915 in 2022, according to Experian. It has increased by nearly 10% since 2020.

At first, this seems like textbook bad news. It’s certainly not good that debt balances are on the rise. However, when digging into the details, there are also some positive signs for consumers.

Americans are spending less of their income on debt

Debt numbers alone are important, but they only tell us so much. For a more complete picture of how debt is affecting people’s personal finances, it’s important to look at debt in relation to income. In that area, Americans are doing well.

The average American spends 9.7% of their personal income on debt payments, according to data from the St. Louis Federal Reserve for the fourth quarter of 2022. That number has been going up recently, likely due to inflation and consumer spending increasing as the economy recovered from the pandemic. But historically speaking, it’s much lower than the last several decades.

For much of the 2000s, debt payments took up 12% to 13% of the average American’s income. Throughout the 1980s and 1990s, debt payments took up at least 10% of people’s paychecks.

While 2% to 3% may not sound like much, it makes a difference. To put those numbers into perspective, the median U.S. income was $69,717 in 2021. If you make that much and pay 9.7% of it toward debt, that’s $6,763. If you pay 13% toward debt, that’s $9,063 — a difference of $2,300.

Over 70% of that is mortgage debt

There are many types of debt, and they’re not all created equal. Of the $17 trillion in total debt, $12.04 trillion (70.8%) is mortgage debt. The average mortgage debt is $236,443, according to Experian. That’s an increase of 7.3% from 2020, when it was $220,380.

Mortgage debt is far less of an issue than most other types of debt. In fact, it’s generally considered “good debt” by creditors, and it has several advantages over other debts, including:

Lower interest rates: Because a mortgage is secured by the home it’s used to purchase, mortgage rates are lower than rates on most other types of debt.Tax benefits: Interest paid on a mortgage is typically tax-deductible through the mortgage interest deduction.Building home equity: As you pay your mortgage, you build home equity. This gets you closer to owning your home outright, and you can also borrow against your home equity through home equity loans and lines of credit.

To be clear, rising mortgage debt isn’t exactly great news, especially considering why it has been going up. Home prices skyrocketed starting from 2020 through 2022. The median U.S. home sale price went from $329,000 at the start of 2020 to $479,500 by the end of 2022. Mortgage rates also went up quite a bit last year.

Still, the fact that mortgage debt makes up the bulk of Americans’ debt is a good thing. It means people are largely borrowing money to work toward homeownership.

Keeping debt under control

While it’s great to be debt free, it’s not necessarily an issue to have debt. It all depends on the type of debt and how manageable your debt payments are.

For example, if you only have a mortgage, and you have no trouble making your payments, that’s perfectly fine. It’s good debt, it’s manageable, and housing is one of the better reasons to borrow money. Auto loans are another type of debt that often isn’t an issue. If you need to buy a car, an auto loan can be a great way to finance the purchase — assuming you don’t overdo it with a car you can’t afford.

On the other hand, if you have high-interest debt, that’s something you should work hard to pay off ASAP. Credit card debt, in particular, tends to be very expensive. And if your debt payments are tying up a large portion of your income, that’s also a warning sign you’ve borrowed too much.

If debt is an issue for you, put as much extra money as you can toward it. See where you can cut expenses, and consider using debt payoff apps that can help you free up more cash. Debt can be stressful when you have a lot of it, but if you make it a focus of yours and stay disciplined, you’ll get it paid off.

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