Is Household Debt in the U.S. really a bigger problem than before the financial crisis?

There are various ways to look at Household Debt (total debt outstanding including mortgages, loans, credit cards and other debt) in the United States, we look at two today.

The first is debt servicing costs to disposable income which effectively is how much it costs to service household debt as a fraction of disposable (after tax) income. The second is household debt outstanding to disposable income which effectively is how much debt there is with respect to the same disposable (after tax) income measure.

 

Household debt servicing costs to disposable income

Under 10% of disposable income is used to service household debt. This is lower than the 13% before the financial crisis. By this measure, household debt is far more manageable than before the crisis.

US Household debt service payments to income upto Q3 2018

The primary reason is lower costs for servicing mortgages. Consumer debt (non-mortgage loans) servicing costs are lower than before the crisis but not as much as mortgage servicing costs. The main reason for lower debt servicing costs is lower interest rates. Rising interest rates could have an impact on debt servicing costs.

US Household mortgage debt service payments to income upto Q3 2018US Household consumer debt service payments to income upto Q3 2018US consumer mortgage debt service payments

 

Household debt outstanding to disposable income

This ratio is down from 1.35 from before the crisis to about 1 now. Household debt outstanding is growing far slower than disposable income which is good as it makes household debt more manageable.

US Household liabilities to income up to Q3 2018

 

Conclusion

By both measures, household debt in the United States is far more manageable than before the crisis.

 

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