Understanding the Trends in U.S. Consumer Debt: A 2023 Overview

As we step into 2024, it’s crucial to understand the dynamics of consumer debt in the United States. According to Experian data, U.S. consumers owed a staggering $17.1 trillion in total debt by the third quarter (Q3) of 2023. This article delves into the various facets of consumer debt, highlighting key trends and insights from the past year.

Overall Debt Levels Slow but Continue to Rise

Despite a slower growth rate compared to previous years, the total consumer debt balance increased by 4.4% in 2023, reaching $17.1 trillion. This is a notable rise from the $16.38 trillion recorded in 2022. While the growth rate has decelerated from the 7% increase seen between 2021 and 2022, the upward trend persists.

Mortgage debt, which constitutes nearly two-thirds of all consumer debt, grew modestly by 3.2%, amounting to $11.6 trillion by Q3 2023. High mortgage rates and a limited housing supply have discouraged both new homebuyers and existing homeowners from entering the market, further constraining the real estate sector.

Southern States Experience Higher Growth in Consumer Debt

In 2023, average debt balances increased across all states, with Southern states witnessing the most significant growth. States like Alabama, Florida, North Carolina, Oklahoma, South Carolina, and Texas saw average total debt balances rise by 4% or more, compared to the national average of 2.3% growth. Lower average FICO® Scores in these states may contribute to higher financing costs for borrowers.

Credit Card Debt Sees Significant Increase

One of the most notable trends in 2023 was the substantial increase in credit card debt. Total credit card balances grew by 17.4%, surpassing $1 trillion. This surge is attributed to a rise in the number of credit card borrowers carrying a balance from month to month and increased retail spending. The impact of recent rate hikes has been particularly pronounced on these unsecured debt products with variable interest rates.

Auto Loans Become the Second Largest Debt Category

Auto loans emerged as the second largest debt category in 2023, with a total balance of $1.5 trillion. This debt is spread across a larger percentage of the population, with over 100 million auto loans compared to approximately 53 million mortgages. The total amount owed on auto loans increased by 7.1% through Q3 2023, driven by higher rates and lingering auto scarcity.

Personal Loans and Home Equity Loans on the Rise

Personal loans and home equity loans have traditionally been used to consolidate or lower the interest rate of higher-cost debt, such as credit card balances. In 2023, both types of loans saw double-digit increases, suggesting that some household debt is being refinanced. Home equity loans, in particular, saw a 17.6% increase, partly due to a rise in home renovation activities.

Student Loan Debt Remains Stable

Student loan balances remained largely unchanged in Q3 2023, as no payments were required, and no interest was assessed on existing student loans until September 2023. As loan repayments resume in 2024, a clearer picture of student loan repayment activity will emerge.

Debt Trends by Credit Score

Consumers with poor credit experienced the most significant increase in debt balances, with a rise of over 20% from 2022. Borrowing costs for these consumers were already high at the beginning of the year and continued to climb as interest rates increased. Additionally, more consumers with poor credit fell behind on payments, incurring additional fees.

Generational Debt Trends

Older generations began to shed some of their overall debt in 2023, while younger consumers, particularly millennials and Generation Z, saw their debt balances grow by 8% and 15.4%, respectively. Generation X registered a modest increase of 1.9% in 2023. The increase among Generation Z is largely due to new student loans and credit cards, while older consumers have fewer financial obligations as they near retirement.

Mortgage Debt and Higher Mortgage Rates

Despite a subdued housing market, home prices remained elevated in 2023. Most new homeowners are paying significantly more in mortgage interest than their more established neighbors. However, many homeowners are content with their situation, as their home equity has generally increased in recent years.

Auto Loan Debt Moderates

While cars remain costly to buy, insure, repair, and drive, the automotive market has mostly recovered from the supply shortages of previous years. Consumers have generally managed to keep auto loan balances in check, with increases in average balances being more moderate in 2023 compared to 2022.

Credit Card Debt by Generation

Generation X stands out with significantly higher average credit card balances compared to other age groups. With average balances of $9,123, Generation X’s credit card debt is 40% greater than the national average. This generation is also likely to have multiple monthly payments, including student loans, mortgages, credit cards, and car payments.

Personal Loan Debt Trends

Both unsecured and secured personal loans grew at double-digit rates in 2023, driven by debt consolidation efforts. Consumers are increasingly turning to fixed-rate loans to manage their variable-rate credit balances, where average APRs now routinely exceed 20% even for those with good credit.

Looking Ahead to 2024

As we move into 2024, rising interest rates on variable-rate credit cards and the burden they place on consumers remain a concern. However, despite some tightening among lenders, there hasn’t been an abrupt halt to extending new credit to consumers. Solid wage growth and easing inflation are expected to counterbalance potential economic pressures.

Average wages continue to outpace inflation, and unemployment remains below 4% nationwide. This economic stability will be crucial for consumers to manage high-interest debt while maintaining spending and saving habits that support economic growth.

For more insights on consumer debt trends and how they may impact you, stay tuned for Experian’s upcoming reports on individual types of consumer debt. As interest rates are likely to change in 2024, these reports will provide valuable information on the evolving economic landscape.

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