Total consumer debt hit just below $4.2 trillion in November 2019 according to the Federal Reserve. Collectively, Americans owe 10 percent of their disposable income to non-mortgage debts like car loans, credit card accounts and student or personal loans.
Americans have been amassing more and more debt since 2013—although disposable income has increased as well. Though income is increasing, American consumers are borrowing more money more often.
What’s causing these changes in behavior? Recent studies have shown that Americans are losing their financial literacy at an alarming rate. These studies, which cover topics like basic finance and investment, show that Americans lack fundamental knowledge in these areas. Perhaps that explains the marked uptick in consumer borrowing.
To dive further into consumer debt and learn how to properly manage it, let’s first understand exactly what it is and how it works in our financial systems.
What is consumer debt?
Consumer debt is personal debt owed by an individual to another entity, typically a bank or credit union. Consumer debt often involves household purchases and transactions independent of a business or government operation. It does not include debts owed by a business or corporation to another entity.
These purchases are typically consumable and include items that do not depreciate in value. Purchases like this allow consumers to better themselves through a purchase without the requirement of paying the full purchase price up front. For example, consumer debt may come in the form of auto or student loans.
Also referred to as credit debt, there are typically two types of consumer debt: revolving and non-revolving.
Revolving Consumer Debt
The most common example of this type of consumer debt is credit card debt. This kind of debt is referred to as revolving because it is meant to be paid off frequently, typically within a month. Federal Reserve fluctuates with consumer use and usually comes with a variable interest rate.
Non-revolving Consumer Debt
Conversely, non-revolving consumer debt is not on a particular payment schedule. Instead, payments may be seen as “fixed” and are usually active for the life of the underlying asset. This type of consumer debt may include long-term loans for cars and education. These debts typically include a fixed payment plan with few changes to the amount charged. It is possible for consumers to choose between fixed and variable interest rates for these debts in some cases.
Consumer Debt Statistics
The following statistics come from the Federal Reserve’s Consumer Credit G.19 release:
- Total consumer debt totaled $4.144 trillion in quarter three of 2019, a 4.7% increase from quarter three of 2018.
- Average consumer debt per capita is approximately $12,687 (total consumer debt as of November 2019/total US population as of January 9, 2020).
- Total revolving consumer debt was $1.083 trillion in November 2019
- Total revolving consumer debt rose 3.8% between quarter three of 2018 and quarter 3 of 2019.
- Average revolving debt per capita is approximately $3,299 (total consumer debt as of November 2019/total US population as of January 9, 2020).
- One in ten adults says they carry a credit card balance over $5,000. [Source: NBC]
- Total non-revolving consumer debt was $3.089 trillion in November 2019.
- Student loans totaled $1.636 trillion in September 2019.
- Auto loans totaled $1.189 trillion in September 2019.
- Average loans per student equal approximately $82,170 (total student loans in September 2019/total students enrolled in public or private universities in 2019)*
*Total enrollment based on a 2019 projection of students in public or private universities
Barring two recessions, one small event in 2001 and the well-known housing market crash of 2008–2009, consumer debt has increased steadily over time. It is possible that total consumer debt may break four trillion dollars within the next decade.
If you’re unsure how to begin tackling your personal debt, there are many available resources to help you. Paying your monthly fees on time and maintaining your credit can also help you reduce your loan amounts over time.