Is Debt Becoming the American Dream Again?

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Benjamin Franklin once said, “When you run in debt; you give to another power over your liberty.” Debt is often referred to as the money of slaves because it creates obligations and reduces a person’s financial freedom. Going deeper into debt today is commonly used as a method to borrow from the future. Voluntary or not, many people are increasing their chances for a life of servitude.

Debt is making a comeback on Main Street. In the fourth quarter, outstanding household debt increased $241 billion from the previous quarter, representing the biggest quarterly gain in more than six years, according to the Federal Reserve’s latest Household Debt and Credit report. Total household debt, which includes mortgages, student loans, credit cards, and auto loans, reached $11.52 trillion at the end of December, up $180 billion from the prior year.

Households raised their overall debt on a year-over-year basis for the first time since 2008. “This quarter is the first time since before the Great Recession that household debt has increased over its year-ago levels suggesting that after a long period of deleveraging, households are borrowing again,” said Wilbert van der Klaauw, senior vice president and economist at the New York Fed.

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Although overall household debt remains 9.1 percent below its peak of $12.68 trillion made in the third quarter of 2008, some types of debt are already making new all-time highs. Student loan debt jumped $114 billion last year to reach an astounding $1.08 trillion, its highest level on record. In comparison, credit card debt and auto loans stand at $683 billion and $863 billion, respectively.

While a rebound in consumer debt is typically seen as a positive sign of economic confidence, too much debt can be disastrous and lead to longer-term problems. At the end of December, 7.1 percent of outstanding debt was in some stage of delinquency, totaling about $820 billion. Furthermore, $580 billion is seriously delinquent — at least 90 days late. Student loans have the worst seriously delinquent rate at 11.5 percent, while credit cards are at 9.5 percent.

In addition to borrowing from the future, debt hinders the savings of today. A new analysis from reveals that 28 percent of Americans have more credit card debt than emergency savings, the highest rate in the past four years. “This is a reflection of the stagnant incomes, long-term unemployment, and high household expenses that are hampering the financial progress of many Americans,” said Greg McBride, CFA,’s chief financial analyst.

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