NY Fed: Household debt rose by $1 trillion in 2021, the sharpest since before the Great Recession

Growing household debt is being driven by higher prices for consumer goods, including homes and cars, according to the New York Fed. (one)

Household debt increased by more than $1 trillion last year, driven by rising car and home prices a new report from the Federal Reserve Bank of New York. This is the largest annual increase in debt since the Great Recession of 2008.

Total Household Debt, NY Fed

“The overall increase in nominal debt in 2021 was the largest we’ve seen since 2007,” said Wilbert Van Der Klaauw, senior vice president of the New York Fed in an opinion. “Total balances of newly opened mortgage and auto loans have risen sharply in 2021, in line with the rise in home and auto prices.”

Credit card debt, in particular, rose $52 billion in the fourth quarter of 2021, the largest quarterly increase in the 22 years since the NY Fed began collecting this data. Outstanding mortgage debt increased $258 billion during that time, and auto loan balances increased $15 billion.

Read on to learn more about growing household debt levels, including ways to pay off debt and save money. You can visit Credible to compare a variety of debt consolidation products such as: B. Credit Card Consolidation Loans, Student Loan Refinance, and Mortgage Refinance.

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Credit card debt is rising to pre-pandemic levels

Outstanding credit card debt grew to $856 billion last year, the highest since the coronavirus pandemic began in early 2020. In the fourth quarter of 2021, credit card balances grew 6.5% — a record quarterly increase since the NY Fed this data.

Outstanding Credit Card Debt, NY Fed

REVOLVING CONSUMER LOAN BALANCES REACH STANDING BEFORE PANDEMIC

This suggests that Americans are increasingly reliant on high-yield credit card debt as inflation drives up the prices of a range of consumer goods, from gasoline to groceries. And that at an average credit card interest rate of 16.44% the Federal Reserveconsumers with revolving credit card balances could be pushed further into debt.

One way to pay off credit card debt is with a debt consolidation personal loan. This is a type of unsecured lump sum loan that is repaid in fixed monthly installments at a lower interest rate. The average interest rate on a two-year personal loan is now at an all-time low of 9.09%, the Fed reports.

Paying off credit card debt with a personal loan can save well-qualified borrowers thousands of dollars in interest costs over time, according to a recent analysis. You can use a personal loan calculator to estimate your monthly payments and potential savings.

Pay off $10,000 worth of credit card debt

If you choose a credit card consolidation personal loan, visit Credible to compare interest rates for free without hurting your credit score. So you can look around for the best possible offer for your financial situation.

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Student loan debt is growing steadily to $1.58 trillion

Student loan balances increased by $21 billion in 2021, according to the NY Fed. That’s a relatively small annual increase since interest and payments on federal student loans have been on hold since March 2020.

Although the Biden administration has extended the grace period for federal student loans several times, monthly payments and interest charges are expected to resume in May. At this point, student loan balances could be growing again before the pandemic, leaving millions of borrowers responsible for paying off their student debt for the first time in more than two years.

If you’re not ready to resume federal student loan payments in a matter of months, consider the following strategies:

  • Sign up for an income-based repayment plan (IDR) to limit your student loan payments to 10-20% of your disposable income. Federal student loan borrowers can learn more about IDR plans on the website of the Federal Student Union.
  • Apply for up to 36 months additional federal forbearance due to economic hardship or an application for a postponement of unemployment. Keep in mind that during the forbearance period on your student loans, interest may accrue and add up to your total loan balance over time.
  • Refinance into a private student loan with a lower interest rate. Student loan refinance can help some borrowers reduce their monthly payments, pay off their debt faster, and save money over time. You can use a student loan refinance calculator to estimate your potential savings.

It’s important to note that refinancing your federal student debt into a private loan exposes you to certain protections, such as: You can visit Credible to learn more about student loan refinance and to determine if this debt repayment strategy is right for you.

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Rising home prices spur growing mortgage balances

The rise in household debt was partly driven by record home price growth, the NY Fed noted. Rising home values ​​have prompted homebuyers to take on larger home loans — mortgage origination topped $4.5 trillion last year, an all-time high in terms of annual growth.

Many homeowners have been able to take advantage of rising home equity and historically low interest rates during the pandemic to refinance their mortgage loans. Although mortgage rates started rising in early 2022, some homeowners could still benefit from refinancing thanks to rising home prices.

Mortgage refinancing can help you lower your monthly mortgage payments, pay off your home loan faster, and save on interest over the life of the loan. You can compare current mortgage rates in the table below and visit Credible to see free mortgage refinance offers tailored just for you without damaging your credit score.

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