KNOXVILLE, Tenn. (WATE) — The Federal Reserve announced that consumer debt hit a new record high of $16.9 trillion at the end of 2022.
Don Bruce, the Director of the Boyd Center for Business and Economic Research and Professor in the Department of Economics for the University of Tennessee, spoke about the kind of debt this includes.
Bruce explained this is the Fed’s effort to keep track of major forms of consumer debt, which includes mortgages, car loans, credit card debt, and student loans.
He also explained which categories made up the largest percentage of the consumer debt record set at the end of the year. He stated mortgage debt represented about $11.9 trillion of the $16.9 trillion total. Overall, he said debt in each category jumped about $1.3 trillion from 2021.
Bruce also spoke about how U.S. consumers have reached this point and how inflation played a role.
“Consumer debt is driven in large part by prices, so inflation matters a lot here, especially with houses,” Bruce told WATE 6 On Your Side. “While the fed has been pretty aggressive in raising interest rates in an effort to control inflation, higher interest rates end up increasing the cost of consumer debt as well.”
Bruce said for the economy the problem comes when debt gets too high relative to income, which can lead to higher rates of default. He said so far, default rates do not appear to be increasing to problematic levels.
As for what people can do to try to reduce or eliminate their debts, Bruce said it all comes down to a good household budget.
He provided the following tips below:
- Take a careful look at monthly expenses and develop a plan to pay down existing debt while not taking on additional debt in this rising interest rate environment.
- Pay bills in full and on time to avoid unnecessary accumulation of costly interest.
- Pay off higher-rate loans first, or consider consolidating or refinancing debts to a lower-rate package.
- Give yourself credit for making slow and steady progress each month.