By Alice Seeley
U.S. consumer debt grew by $1 trillion in 2021, the most significant increase in overall debt since 2007. The country’s total debt balance is currently $1.4 trillion higher than in 2019. From credit card balances to car loans, the average U.S family now owes $155,622.
This high borrowing was due to rising prices as people struggled to deal with the strongest inflation seen in nearly four decades. Over the past two years, the average income fell 3%, while the cost of living rose almost 7%.
The increase is primarily due to a dramatic rise in prices for homes and cars. The price of the average U.S. home rose 20% in 2021. Mortgage balances increased by $258 billion to $10.93 trillion at the end of 2021. Auto loan amounts also increased. According to New York Fed researchers, “as car prices have soared, buyers have borrowed more to finance the additional cost.”
During the pandemic, many households paid down their credit card debt, but as people returned to everyday life post COVID, they also returned to their pre-pandemic spending habits. Credit card balances increased by $52 billion in December 2021. This is the largest quarterly increase recorded in history.
Americans took on more new debt in 2021 than in any year since before 2008.
“The past year and a half was already tough for the millions of Americans who lost jobs,” said Sara Rathner, NerdWallet’s credit cards expert. “Now, we’re faced with rising costs for much-needed items — food, housing, gas, transportation, and medical care. It remains difficult for many to catch up.”
However, the good news is that student loan balances decreased by $8 billion after nearly two decades on the rise.
