US consumer debt totals $15.6 trillion in 2021, record increase in 18 years

• Biggest chunk of debt-load increase came from mortgages, which jumped $890 billion in 2021

• Americans ramped up credit-card spending to pre-pandemic expenditure habits in Q4

U.S. consumers debt increased to a record level last year, the largest ever jump in nearly 18 years, leading into a year in which the central bank is expected to increase the interest rates substantially.

In 2021, the total consumer debt came to $15.6 trillion, a gain of over $1 trillion from the year earlier, the Federal Reserve Bank of New York said in its quarterly report on Household Debt and Credit, published Tuesday.

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The debt in the fourth quarter alone increased $333 billion to $15.58 trillion, the report mentioned, which was the most significant rise since 2007.

The jump in consumer debt came ahead of a period when the Fed is expected to start raising its interest rates to combat inflation, which is running at its fastest pace in nearly 40 years.

Last month, the central bank hinted that it would start hiking rates in March, and experts are anticipating that the Fed will enact at least five increases this year, totaling 1.25 percentage points.

Rate hikes are directly tied to the prime rate, the commercial lending rate, that consumers have to pay to banks for debts like credit cards and adjustable-rate mortgages.

Debt balances

A large chunk of the debt load came from mortgages, which rose by $890 billion for the year and recorded at $10.93 trillion for the last quarter of 2021, a jump of nearly $258 billion.

New mortgages reached a historical high, and auto loans soared, reflecting steep price increases in homes and cars.

Overall loans to buy vehicles rose by $90 billion, or 6.6%, to $1.46 trillion.

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New auto prices rose 11.8% for the year while used vehicles soared by 37.3%, according to Labor Department data.

Credit card balances also increased as Americans ramped up their credit-card spending to their pre-pandemic expenditure habit in the final three months of the year.

While the debt incurred from credit cards increased every quarter in 2021 to end the year at $856 billion, the fourth-quarter gain was the largest in figures dating back 22 years, rising by $52 billion.

Picture Credit: Nikkei