American families are taking on increasing amounts of debt as incomes fail to keep pace.
Indebted households today have credit card balances averaging $16,061 — just shy of 2008’s high, according to a new NerdWallet report, based on data from the Federal Reserve Bank of New York and the Census Bureau.
And total household debt, including mortgages, has ballooned to $132,529, up from $88,063 in 2002, when NerdWallet started tracking the data. While household income has grown by 28 percent in the past 13 years, it lags the the cost of living, which increased 30 percent during the period.
Medical expenses jumped the most, up 57 percent since 2003, while the cost of food rose 36 percent and housing increased 32 percent.
To bridge the gap, many Americans increasingly rely on credit cards, one of the most expensive ways to borrow. Currently, the average credit-card interest rate is 18.76 percent and the average household pays a total of $1,292 in credit-card interest each year.
Although the economy is improving, wage growth is sluggish. As a result, “Americans are increasingly worse off every year,” said SeanMcQuay, Nerdwallet’s credit card associate.
On the upside, some key expenses have subsided. After years of skyrocketing increases, education costs have stopped outpacing income, increasing 26 percent since 2003, just shy of the 28 percent in income growth, NerdWallet said.
And while student loan debt has grown a whopping 186 percent in the past decade, that trajectory has also slowed in recent years. Between September 2015 and September 2016, student loan balances increased by just over 6 percent, the smallest increase since NerdWallet started tracking the numbers in 2003.
Altogether, by the end this year, total debt is expected to surpass the amount Americans owed in December 2007, at the start of the Great Recession. However, back in 2007, a much larger percentage of Americans’ $12.37 trillion in total debt was from credit cards. Now it’s more heavily weighted toward mortgages and student loans.
“It’s healthier that consumers are putting more of their debt into mortgage and education costs because those interest rates are much, much lower. You are looking at difference of 10 to 12 to even 15 percent, depending on the loan,” McQuay said. “But it’s still debt.”