U.S. Households Took On $1 Trillion in New Debt in 2021

U.S. Households Took On  Trillion in New Debt in 2021

Americans took on more new debt in 2021 than in any year since before the 2008-09 financial crisis.

Total household debt rose by $1.02 trillion last year, boosted by higher balances on home and auto loans, the Federal Reserve Bank of New York said Tuesday. It was the largest increase since a $1.06 trillion jump in 2007. Total consumer debt now sits at around $15.6 trillion, compared with $14.6 trillion a year earlier.

The increase is largely a function of a sharp rise in prices for homes and cars. The price of the average U.S. home rose close to 20% in 2021, boosting mortgage balances and pricing out many middle-class buyers. Rising prices for new and used cars drove auto-loan originations to a record $734 billion.

The rise in consumer borrowing isn’t cause for alarm, New York Fed economists said. Wealth increased across all income levels during the pandemic, according to the Federal Reserve, though much of the gains accrued to the richest Americans. Delinquency levels on consumer loans are still hovering around record lows.

What’s more, some 87% of the new debt is tied to homes that can appreciate over time, allowing borrowers to build wealth. Today’s home buyers also are in better financial shape. Subprime borrowers accounted for just 2% of the mortgage debt originated in the fourth quarter of 2021, down from an average of 12% in the years before the financial crisis.

Americans added $52 billion to their credit-card balances in the fourth quarter, the largest quarterly jump on record, the New York Fed said in its quarterly report on household debt and credit, which is based on data from

Equifax Inc.

credit reports. Pent-up demand for travel and entertainment purchases that consumers were unable or willing to make earlier in the pandemic boosted credit-card balances in the final three months of the year.

Credit-card balances fell sharply in the pandemic’s early months, the result of a decline in spending and availability of stimulus money that allowed borrowers to pay down their debt. Total credit-card balances stood at $856 billion at the end of 2021, down from $927 billion two years earlier.

The Federal Reserve has signaled it plans to raise interest rates in 2022 in response to stubbornly high inflation. WSJ’s J.J. McCorvey explains what higher rates could mean for your finances. Photo illustration: Todd Johnson

Write to Orla McCaffrey at [email protected]

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Rachel Meadows

Rachel Meadows

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