FACTS ON POLICY: Consumer Debt

February 3, 2009

Household debt fell for the first time in fifty-six years.

In the third quarter of 2008, U.S. household debt, which consists primarily of mortgage and consumer debt, contracted at an annualized rate of 0.8 percent. The drop was due to a decline in mortgage debt, which fell at an annualized rate of 2.5 percent. Consumer debt increased at an annualized rate of 1.2 percent during this period, which was not enough to offset the contraction in mortgage debt.

Household debt during the third quarter of 2008 totaled $13.9 trillion, down $30 billion from the previous quarter.

The lower debt levels during this period are indicative of an overall tightening of credit by lending institutions. They also reflect the high level of mortgage defaults.

Mortgage Debt
•Mortgage debt, which had increased at double-digit rates annually from 2001 to 2006, grew by only 7 percent in 2007 and at even slower rates in 2008. (As mentioned above, mortgage debt fell during the last quarter of 2008.)
•Home mortgage debt totaled $11.2 trillion during the third quarter of 2008.
•Mortgage debt constituted roughly 80 percent of total household debt.

Consumer Debt
•Consumer debt stood at $2.58 trillion in October 2008. This amounts to a debt of roughly $8,500 per person.
•Consumer debt is composed of revolving and nonrevolving credit.

Other Debt Statistics (latest data available are from 2004, unless otherwise noted.)
•23 percent of households had no debt.
•46 percent of households had credit card debt.
•Forty cents out of every dollar was spent on a credit card.
•In the third quarter of 2008, the ratio of debt payments to disposable income was 14 percent.

Figure 1
Outstanding household debt, 1975–2008 (Q3) in billions of dollars

Sources:

• Federal Reserve Board, 2004 Survey of Consumer Finances, “Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances” February 2006.

• Federal Reserve Board, Statistical Release, “G.19 Consumer Credit”(January 2009).

• Federal Reserve Bank of St. Louis, “Series: TDSP, Household Debt Service Payments as a Percent of Disposable Personal Income.”

• Federal Reserve Board, Statistical Release, “Z.1 Flow of Funds Accounts of the United States.”(December 2008)

• Ben Woolsey and Matt Schultz, Creditcards.com, “Credit card industry facts, debt statistics 2006-2009” (January 2009).

Related Links and Material:

• Kathleen Connell, Christian Science Monitor, “The ‘Catch 22’ of Consumer Credit” (November 3, 2008).

• Gretchen Morgenson, New York Times, “Given a Shovel, Americans Dig Deeper into Debt”(July 20, 2008).

• Kelly Evans, Wall Street Journal, “Hard-Hit Families Finally Start Saving, Aggravating Nation’s Economic Woes” (January 6, 2009).

Quiz Source Information:

• “U.S. Census Bureau, Table 1148. Credit cards: holders, number, spending and debt, 2000 and 2006, and projections, 2010.”