Consumer Debt Statistics: Causes and Impact

3 Reasons Why Americans Are in So Much Debt

Cut credit card
Many consumers cut credit cards during the recession -- and left them that way. Photo: Chemistry/Getty Images

Definition: Consumer debt is what you owe, as opposed to what a business or the government owes. It's also called consumer credit. It can be borrowed from a bank, a credit union and even the federal government. 

There are two types of consumer debt: credit cards (aka revolving) and fixed-payment loans (aka non-revolving). Credit card debt is called revolving because it's meant to be paid off each month.

Non-revolving debt isn't paid off each month. Instead, these loans are usually held for the life of the underlying asset. Two-thirds of this debt is either auto loans or education loans.

Although home mortgages are also an enormous debt, they aren't consumer debt. Instead, they are personal investments in residential real estate.


In June 2017, U.S. consumer debt rose 3.9 percent to $3.856 trillion. That surpassed last month's record of $3.843 trillion.

Of this, $2.8 trillion was non-revolving debt, and it rose 3.5 percent. Most of the growth comes from education loans. In June 2017, it was $1.097 trillion. The Affordable Care Act of 2010 replaced Sallie Mae with federal government management of school loans. That cut costs by eliminating the middle man. It also increased the availability of education assistance. As a result, non-revolving debt rose from 62 percent of all consumer debt in 2008 to 73 percent in 2017.

(Source: "G-19 Report," The Board of Governors of the Federal Reserve System.)  

Credit card debt totaled $1.021 trillion, and it increased 4.9 percent during the month. Credit card debt has hit the record of $1.02 trillion set in April 2008. But credit card debt is only 26 percent of total debt. It was 38 percent in 2008.

The Federal Reserve reports on consumer debt each month. Here are historical statistics by month since 1943.

Three Causes

Why are Americans in so much debt? There are three main reasons: credit cards, auto loans and education loans. 

1. Credit card debt rose due to the Bankruptcy Protection Act of 2005. That Act made it harder for people to file for bankruptcy. As a result, they ran up credit cards in a desperate attempt to pay their bills. Most of this was to pay for health care. See Health Care Costs Are the No.1 Cause of Bankruptcy.

The recession curtailed credit card debt. It fell more than 10 percent in each of the first three months of 2009. During the recession, banks cut back on consumer lending. Then the Dodd-Frank Wall Street Reform Act increased regulations over credit cards, so they tightened credit standards. By April 2011, it had fallen to a low of $839.6 billion.  Despite these decreases, the average American household still owed $7,055 in credit card debt.  For more, see Consumer Financial Protection Agency.

2. Auto loans are normally three to five years. These loans can be paid back with either fixed interest rates or variable rates. If the borrower fails to make payments, the bank will usually reclaim the underlying asset.

 They've risen so much because people are taking advantage of low-interest rates, thanks to the Fed's expansive monetary policy

3. Education loans are typically 10 years but can be extended to 25 years. Of course, the bank can't claim any asset on school loans. For that reason, most school loans are guaranteed by the Federal government. These loans have low interest rates to encourage higher education. The government invests in this kind of spending because the country benefits from a more highly skilled workforce. That could eventually lead to a reduction in the nation's income inequality and a healthier economy

These loans skyrocketed during the recession. Many unemployed people sought to improve their skills. They took advantage of greater availability and lower costs, thanks to the Affordable Care Act.

Effect on You and the Economy

Consumer debt drives the American dream and contributes to economic growth. It allows you to furnish your home, pay for education and get a car without having to save for them first.

As long as the economy grows, you can pay off this debt more quickly in the future. That's because your education allows you a better-paying job. The cars and furniture you buy create jobs. That creates an upward cycle, boosting the economy even more. 

But debt can be devastating. If the economy goes into recession, and you lose your job, you may go into default. That can ruin your credit score, and ability to take out loans in the future. Even if the economy remains, robust, you can take on too much debt. It's not just because of so-called poor spending habits. It's also a result of unexpected medical bills. 

The best way to avoid the disadvantages of credit card debt is to pay it off each month. In addition, save up six months worth of spending. That will cushion you if a recession hits, you lose your job or you face a medical emergency.