New York Fed: Household debt increased by $1 trillion in 2021, most since before the Great Recession

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

According to a new report of the Federal Reserve Bank of New York. This is the largest annual increase in debt since before the Great Recession of 2008.

Total household debt, NY Fed

“The total increase in nominal debt in 2021 was the largest we’ve seen since 2007,” said New York Fed Senior Vice President Wilbert Van Der Klaauw. in a report. “Aggregate balances of newly opened mortgages and autos have risen sharply in 2021, matching rising home and car prices.”

Notably, credit card debt soared by $52 billion in the fourth quarter of 2021, the largest quarterly increase in 22 years since the New York Fed began collecting this data. Outstanding mortgage debt increased by $258 billion during this period, and auto loan balances increased by $15 billion.

Keep reading to learn more about the growing household debt balance, including ways to pay down debt and save money. You can visit Credible to compare a variety of debt consolidation products, such as credit card consolidation loans, student loan refinance, and mortgage refinance.

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Credit card debt reaches pre-pandemic levels

Outstanding credit card debt reached $856 billion last year, the highest since the coronavirus pandemic began in early 2020. In the fourth quarter of 2021, credit card balances credit cards soared 6.5% – a record quarterly increase since the New York Fed began collecting this data.

Outstanding Credit Card Debt, NY Fed

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It suggests that Americans are increasingly reliant on high-interest credit card debt as inflation drives up the prices of a number of consumer goods, from gasoline to groceries. And with the average credit card interest rate at 16.44%, according to the Federal Reserveconsumers with revolving credit card balances could take on even more debt.

One way to pay off credit card debt is to take out a personal debt consolidation loan. It 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 currently at an all-time low of 9.09%, the Fed reports.

Paying off credit card debt with a personal loan can save qualified borrowers thousands of dollars in interest charges 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 in credit card debt

If you decide to use a personal loan for credit card consolidation, visit Credible to compare interest rates for free without affecting your credit score. This way, you can shop around for the best possible deal for your financial situation.

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Student loan debt rises steadily to $1.58 billion

Student loan balances grew by $21 billion in 2021, according to the New York Fed. This is a relatively small annual increase, as interest and payments on federal student loans have been suspended since March 2020.

Although the Biden administration has repeatedly extended the federal student loan forbearance period, monthly payments and interest charges are expected to resume in May. Right now, student loan balances could resume their pre-pandemic growth, 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 few months, here are some strategies to consider:

  • Sign up for an income-based repayment (IDR) plan to limit your student loan repayments to 10-20% of your disposable income. Federal student loan borrowers can learn more about IDR plans at the federal student aid website.
  • Apply up to 36 months of additional federal forbearance by a request for deferment of economic hardship or unemployment. Remember that interest may accrue while you defer your student loans, which will add to your total loan balance over time.
  • Refinance a private student loan with a lower interest rate. Refinancing student loans can help some borrowers lower their monthly payments, pay off debt faster, and save money over time. You can use a student loan refinance calculator to estimate your potential savings.

It is important to note that refinancing your federal student debt into a private loan will make you ineligible for certain protections, such as IDR plans, COVID-19 administrative forbearance, and federal student loan forgiveness programs. You can visit Credible to learn more about student loan refinancing and whether this debt repayment strategy is right for you.

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Rising home prices drive growth in mortgage balances

The surge in household debt was partly due to record growth in house prices, the New York Fed found. Rising home values ​​have prompted buyers to take out larger home loans – mortgages 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 mortgages. Although mortgage rates began to rise in early 2022, some homeowners may still benefit from refinancing thanks to the appreciation in home prices.

Mortgage refinancing can help you lower your monthly mortgage payments, pay off your home loan faster, and save money on interest over the life of the loan. You can compare current mortgage rates in the chart below and visit Credible to see free mortgage refinance offers that suit your needs without affecting your credit score.

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