Auto and student loans accounting for a larger share of debt

This article looks at how debt is changing for Americans, with a focus on auto and retirement debt.

A new report by the New York Fed says that the average household debt in the United States is likely to exceed 2008 levels at some point this year, according to Think Advisor. By the end of 2016 overall household debt was just $100 billion shy of the $1.68 trillion peak that was reached in the third quarter of 2008. Unlike in 2008, however, the growing mountain of debt that Americans are carrying is being driven not by mortgages, but by student and auto loans. Especially worrying is the rise in subprime auto loans and the number of older Americans heading into retirement with debt.

The changing face of debt

While overall debt is at 2008 levels, housing-related debt is actually down by $1 trillion. By the end of last year 71 percent of household debt was in mortgages, compared to 79 percent in 2008. Credit card debt also shrunk slightly from 6.8 percent in 2008 to 6.2 percent at the end of 2016.

However, student debt and car loans are up dramatically. Student debt has surged from five percent of household debt in 2008 to 10.4 percent today, which is $671 billion higher than in 2008. In fact, one of the reasons there is less mortgage debt is because many Americans are carrying too much student debt to be able to afford a mortgage in the first place. Auto loans are another worrying feature of household debt today. Auto loans are $367 billion higher, up from 6.2 percent of household debt in 2008 to 9.2 percent today.

Auto and retirement debt

The growth of auto debt is particularly concerning since many car loans come with high interest rates. As MarketWatch reports, auto loan delinquencies reached their highest point since 2010 at the end of 2016. According to the New York Fed, about 12 percent of people who are using a loan to buy a car have a repayment period on that loan that is longer than how long they plan on keeping the vehicle.

The debt that older Americans are carrying is also extremely worrisome. Americans aged 60 and older are now carrying 22.5 percent of all household debt in the country, which is up from 15.9 percent in 2008. Part of the reason older people are carrying more debt is because more of them are taking on student loans for their children. And while credit card debt has fallen for most Americans, it has actually risen for those aged 60 and over. Those figures suggest many older Americans are in a financially perilous position heading into retirement.

Bankruptcy law

For those who are struggling with debt, it is important to know that there are solutions available. Bankruptcy may be one option that can help people get back on their feet. While bankruptcy is not the best choice for everyone, it can provide some breathing room for those who qualify. A bankruptcy attorney can help clients understand what their options are and whether bankruptcy might be a viable path forward.