Dealing With Debt

Household Debt Report

Household balance sheets much better than reported

Despite numerous reports claiming that credit card debt just set a record, WalletHub’s analysis of the most recent data from the Federal Reserve Bank of New York shows that inflation-adjusted debt levels have been higher numerous times in the past. Adjusted for inflation, credit card debt actually reached its all-time high in Q4 2008. Access full report findings and infographics here.

U.S. households paid off $169 billion in debt during Q2 2023 – roughly 216% more than the average Q2 change over the past 19 years. As a result, U.S. households collectively owed $17.1 trillion to start Q3 2023.

In order to get a better understanding of the current household debt situation and how it compares to the past, WalletHub uses the latest data from the New York Fed but adjusts it for inflation. Adjusting for inflation is key as it accurately shows how debt compares to historical levels. Below, you can see the latest household debt statistics and insights into the financial health of U.S. consumers.

“When you account for the massive impact inflation has on balances as well as the fact that debt-to-deposit levels are roughly 50% below the peak, U.S. households are actually in a lot better shape financially than it seems at first glance,” said Odysseas Papadimitriou, WalletHub CEO. “Inflation is masking the fact that people are actually managing their debt better than they have in the past.”

Key Stats:

  • Face Value: In absolute terms, U.S. credit card debt has never been higher than the $1.031 trillion owed as of Q2 2023.
  • Inflation-Adjusted: When you adjust for inflation, it’s clear that U.S. households owed more to credit card companies from 2006 to 2009 as well as around 2019. Currently, total credit card debt is 18% below its inflation-adjusted peak.
  • Household Average vs. Breaking Point: The average household had $8,668 in credit card debt at the end of Q2 2023, which is 20% below the record on an inflation-adjusted basis.
  • Credit Card Debt to Deposits Ratio: The ratio between credit card debt and deposits has been shrinking since 2003, when it was at 15%. Currently, credit card debt represents 6% of deposits.
  • Total Debt to Deposits Ratio: The ratio between total household debt and deposits has been going down over the years, and it is still below pre-Covid levels as well as roughly 50% below the peak from the early 2000s.

5 Tips for Dealing With Debt

When you account for the massive impact inflation has on balances as well as the fact that debt-to-deposit levels are roughly 50% below the peak, U.S. households are actually in a lot better shape financially than it seems at first glance...

1.) Check your balances and APRs – To make the best possible plan for dealing with your debt, you’ll need to know how much you owe and how much each balance costs. This will enable you to make an informed budget and prioritize which debts to focus on paying off first.

2.) Compare low-interest credit cards and loans – The best balance transfer credit cards offer 0% introductory APRs for as long as 21 months. Transferring some or all of your debt to such a card could save you hundreds or even thousands of dollars on interest, depending on how much you owe, your current APR, and how quickly you can pay it off in the absence of interest. You can use a balance transfer calculator to crunch the numbers.

If you have more debt than a single balance transfer credit card can accommodate or you need more time to pay off what you owe, a low-interest debt consolidation loan could help reduce the cost of your debt and simplify your monthly payments.

3.) Cut Unnecessary Expenses: Reduce how much you’re spending on luxuries like dining out or live entertainment. This will give you more money to put toward your debt.

4.) Generate Additional Income: It might be easier for some people to earn extra income than cut back on expenses, considering how strong the job market is right now. So, explore new income-earning strategies, such as getting a part-time job, changing jobs or selling unused items.

5.) Use the Island Approach to isolate debt – The Island Approach is a credit card strategy that involves using separate credit card accounts to handle different types of transactions. This enables you to get the best terms for each type of transaction, rather than settling for one card that’s only good in one area or average across the board. The Island Approach can also provide a built-in alarm against overspending. If you isolate your debt on cards with low interest rates and designate other cards for everyday spending, any finance charges that appear on your everyday spending accounts will be a sign that you need to cut back.