Consumer debt rose to record levels at the end of 2021, with overall household debt coming in at more than $15 trillion. The represents a $1 trillion dollar increase in household debt in 2021. This was the largest year over year increase in household debt in almost 20 years. Why is household debt rising so fast? Here are the main reasons:
- A $900 million increase in mortgages. The buying frenzy combined with constantly rising prices has left consumer holding a record amount of mortgage debt.
- A $900 billion increase in credit card debt. We live in a consumption society so there is almost no way for the average4 household to avoid credit card debt. With prices rising this is putting pressure on households to use credit cards more just to make ends meet.
- A $90 billion increase in car loans due to a 12% increase in car prices.
How is this going to affect you? There are a couple of ways, but the one that is most imminent is the increase in monthly credit card payments. Credit Card interest rates are variable and as the Federal Reserve increases interest rates, which they said they will do 5 times in 2022, consumers will see their credit card significantly rise as a result. This means less money to make ends meet and for many it means not enough money to avoid going into default.
While the housing market may stay strong in 2022 keeping foreclosures down, it appears that the bankruptcy market could be heating up as household debt is rising much faster than wages and a chapter 7 bankruptcy provides the best option for many consumers to rid themselves of their debt.