4.5X more debt added in Q4 2022 than prior yearWith inflation and Federal Reserve rate hikes putting pressure on household budgets, WalletHub today released its latest Household Debt Report evaluating how U.S. consumers are faring. This report adjusts data for inflation to accurately show how debt compares to historical levels. View complete report findings here.
Household debt is on the rise, as we ended 2022 with roughly $320 billion more in total debt that we started with – 59% more than the average annual increase over the past 18 years. As a result, U.S. households collectively owed $17 trillion to start 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. Below, you can see the latest insights into the financial health of U.S. consumers.
- Consumers added a total of $398 billion in new debt during Q4 2022 – the fourth highest build-up for a fourth quarter in the past 20 years and nearly 4.5X larger than Q4 2021.
- Total household debt grew to $17 trillion in 2022 – roughly $1 trillion below WalletHub’s projected breaking point, based on debt levels during the Great Recession.
- The average household owed a total of $142,680 at the end of 2022, only $11,710 below WalletHub’s projected breaking point for household finances.
- Household mortgage debt increased by $290 billion in 2022, the second highest annual increase since the end of the Great Recession.
- In Q4 2022, debt from home equity lines of credit (HELOC) increased by $14 billion, the second consecutive increase after a string of 22 consecutive quarterly paydowns.
- Auto loan debt decreased by $106 million in 2022 – the second annual paydown in a row after a decade of increases from 2011 through 2020.
- Total student loan debt decreased by $83 billion in 2022 – the second biggest paydown since 2003.
Q&A with WalletHub’s Jill Gonzalez
How much debt can the average U.S. household handle?
“We’re not quite to the breaking point, but U.S. households can’t afford to take on too much more debt, especially if the economy takes a turn for the worse. For example, total household debt is about $17 trillion, $1 trillion below the threshold WalletHub identified as being unmanageable,” said Jill Gonzalez, WalletHub analyst. “People should be thinking about how to shed debt and get in shape for a recession, not assuming a bit more debt will make no difference.”
Which type of debt is most problematic for U.S. households?
“Mortgages account for 71% of our household debt, which is to be expected given the high cost of housing and isn’t terribly problematic given that it’s secured debt providing you shelter while you pay it off. Student loans and auto loans each account for about 9% of household debt are more likely to be wasteful,” said Jill Gonzalez, WalletHub analyst. “Even though it represents only 6% of total debt, credit card debt is the most dangerous because the interest rates are much higher than what most loans charge, and they’re only getting higher with each Fed rate hike.”
Can you put U.S. household debt into context?
“U.S. households collectively owe $17 trillion, as of the fourth quarter of 2022 – the most recent data available. For context, the Department of Defense budget for fiscal year 2023 is $1.9 trillion, more than $4 trillion was spent by the U.S. on Covid relief, and the New York Yankees have a reported value of $6 billion,” said Jill Gonzalez, WalletHub analyst.
How can U.S. households reduce their debt?
“The most important thing households can do to reduce their debt is make a budget for everyone in the household to follow and then track what actually happens. Knowing how much you can afford to spend and holding everyone accountable for their performance will go a long way,” said Jill Gonzalez, WalletHub analyst. “To jump start your efforts, consider applying for a balance transfer credit card or a debt consolidation loan. If you have a good or excellent credit score, consolidating your debt could make it less expensive and easier to pay off.”