How Americans Buried Themselves $13 Trillion Deep in Debt

sad man on phone

Debt can be crushing. | Ralph Orlowski/Getty Images

When you’ve gotten yourself into some trouble, it can be comforting to know you’re not the only one. For example, if you get caught in a speed trap and pulled over by a police officer, seeing others get tickets might make you feel less foolish. The same goes for financial decisions and debt.

Take student loans as another example. If you’re an average student these days, you’re probably graduating with a huge amount of debt. (We’ll get into that in more detail.) And if you didn’t know that’s more or less par for the course, you might feel you’ve been scammed or taken advantage of.

But when everybody’s overstepping and overspending, we can run into serious problems. Take the housing bubble, for example, or the budding issues with auto and student loans. Eventually, the chickens will come home to roost, and that’s why you should pay attention to just how much debt Americans are in. Right now, we’re looking at about $13 trillion in U.S. consumer debt. But where did that figure come from?

Total US consumer debt: $12.84 trillion

A woman checks a receipt.

A woman checks a receipt. | iStock.com/lenanet

According to a Federal Reserve Bank of New York release, which is where we’ve pulled all the following data from, the total U.S. consumer debt is $12.84 trillion. Now, with that out of the way, we’ll get into the thick of it.

The real issue here is not just that Americans have a lot of debt. Some debt is necessary, after all. It’s that we seem to be taking on more of it even as we’re facing some very real and scary economic issues, such as decreasing job prospects and increasing levels of income inequality. The key is this, according to the New York Fed’s report: “Total household debt increased by $114 billion (0.9%) to $12.84 trillion in the second quarter of 2017.”

You may pull out your hair saying, “What are these people thinking?” Or you can take this as a positive sign. People generally borrow when they’re confident they can pay it back, right? We’ll get into this on the following pages.

Next: We’ll start by digging into the single biggest source of debt for American consumers: housing.

Mortgages

home with for sale sign

A for-sale sign is posted in front of a home. | Joe Raedle/Getty Images

  • As of the second quarter of 2017, total American housing debt is $8.69 trillion.

People need to live somewhere, and very few of us can afford to pay for a house in cash. That’s why we generally don’t think of a mortgage as bad debt. But we’ve all seen what can go wrong, as it did during the housing bubble and financial crisis. Right now, total housing debt is near $8.7 trillion. Although that balance increased over the second quarter of 2017, the good news is mortgage delinquencies improved and foreclosures decreased.

Next: People are borrowing against the value of their home.

Home equity line of credit

piggy bank with dollars

Some people use their home collateral for a loan. | iStock.com

  • Americans have borrowed $452 billion against their homes.

Just what does “home equity line of credit” mean? Basically, it’s a loan you take out using your home as collateral. It’s similar to a second mortgage, using the equity you’ve built up in your home. For a lot of people, this isn’t going to be a big source of debt. And relatively speaking, the $452 billion Americans owe in this specific area is a drop in the bucket compared to others.

Next: The big bubble nobody’s talking about

Auto loans

SAN FRANCISCO - NOVEMBER 21: A homeless man walks by a Jeep dealership that went out of business November 21, 2008 in San Francisco, California. Several San Francisco Bay Area car dealerships have shut their doors as car sales continue to slump due to a weak economy.

People are buying cars they can’t afford. | Justin Sullivan/Getty Images

  • Americans owe $1.19 trillion on their vehicles.

Expect to see more concern about auto loan debt start bubbling up in the near future. A lot of people can’t afford cars, but that isn’t stopping Americans from buying them. According to the Fed’s report, “Auto loan balances continued their steady rise seen since 2011, with an increase in auto loan originations. Median credit scores of borrowers for these new loans declined slightly.” We’re now above the $1 trillion mark when it comes to auto loan debt.

Next: Another source of consumer debt? Credit cards.

Credit cards

Paying Drink With Credit Card

People overspend with credit cards. | mikdam/Getty Images

  • Total credit card debt in the U.S. is $784 billion. 

Americans do love their credit cards. And even though credit card debt tends to be one of the more dangerous and expensive types of debt, we’re still using them like crazy. Total credit card debt is now $784 billion, up $20 billion from the second quarter of 2017 and $87 billion from 2016. The good news is serious delinquency rates remained flat, per the Fed’s report, even though balances increased.

Next: Besides auto loans, there’s another elephant in the room: student loan debt.

Student loans

Workers staff the front desk of the University of Michigan's Undergraduate Admissions office

Workers staff the front desk of the University of Michigan’s Undergraduate Admissions office. | Bill Pugliano/Getty Images

  • Total student loan debt among American students now stands at $1.34 trillion.

If there’s one source of debt that has everybody talking, it’s student loans. The total is more than $1.34 trillion now, and the average graduate is leaving school with more than $37,000 in debt. One alarming thing the report identifies is delinquency rates among student borrowers are getting bigger. As of the second quarter of 2017, that rate was 11.2%, an increase of 0.2% from the first quarter.

Next: Should we even care that Americans owe so much money?

Should we be worried?

Anti-stress balls in hand, according to the window with bright sunlight

Should these numbers stress you out? | iStock.com/RobertoDavid

So Americans owe a whole lot of money. Who cares, right? Seriously, should you be losing sleep over these numbers?

There really isn’t an easy answer, but if you’re hellbent on trying to read the tea leaves, you can express some cautious optimism. Obviously, we know things can go wrong — horribly wrong — when consumers decide to take on more than they can afford. But, as mentioned, the fact that people are willing to take on debt is generally a good sign. It means they’re confident they can pay it back.

The problem is when that optimism runs amok, and we lose check of our boundaries. Suddenly, you have a hot tub, a boat, and two cars, and you don’t really need any of it. You’re still stuck with the bills and payments. Living beyond our means is where we get into trouble. A lot of people are in over their heads when it comes to auto and student loans, specifically, and at some point the dam will break. But for now, you shouldn’t lose any sleep over your neighbors’ spending.

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