Americans are carrying more debt than ever, and the cost of that debt may be about to rise. Total household debt climbed $334 billion, or 1.8%, in the third quarter to a record $19.1 trillion, according to Federal Reserve Bank of New York data reported by TipRanks.
Where the borrowing grew
According to the New York Fed figures, as reported by TipRanks:
- Mortgages: up $257 billion to $13.4 trillion
- Home equity lines of credit: up $23 billion to $481 billion, the biggest quarterly jump since 2005
- Credit cards: up $22 billion to $1.29 trillion
- Auto loans: up $21 billion to $1.73 trillion
- Student loans: up $5 billion to $1.66 trillion
About 5.0% of all consumer debt was in some stage of delinquency, up 0.3 percentage points from the prior quarter.
Why the timing matters
The data arrived the same day a hotter-than-expected inflation report pushed Treasury yields sharply higher. The 10-year yield ended Tuesday near 4.98% after briefly topping 5%, according to Capp Notes, and traders now see a Federal Reserve rate hike in December as nearly certain. The Fed’s current target range is 3.75% to 4%, according to Trading and Investment News.
Many types of consumer debt, including most credit cards and home equity lines, carry variable rates tied to Fed policy. When the Fed raises rates, those payments typically rise within a billing cycle or two. For people nearing or in retirement, that can squeeze a fixed income.
Questions to ask if you are near retirement
- Is any of my debt variable? A HELOC used for renovations or to cover expenses can become more expensive quickly in a rising-rate environment. Knowing your rate terms helps you plan.
- Can I reduce high-cost balances before I stop working? Paying down credit cards while you still have a paycheck can lower fixed costs in retirement.
- Am I relying on home equity? The record jump in HELOC balances suggests many households are tapping their homes. Equity borrowed now is equity not available later for long-term care or other needs.
- How exposed is my bond portfolio? Rising yields lower the market value of existing bonds and bond funds, though they also mean higher income on new purchases.
The other side of higher rates
Rising rates are not all bad news for retirees. Savers can earn more on Treasurys, CDs and money market funds. Yahoo Finance noted in October that a 10-year Treasury yielding about 5.1% pays roughly $51 a year per $1,000 if held to maturity, though selling before maturity can mean a loss if rates keep rising. Many retirees use a mix of shorter-term savings for flexibility and longer-term bonds to lock in income.
The key takeaway: with borrowing at a record and the Fed likely to tighten further, now may be a good time to review what you owe, what rates you pay, and how your savings are positioned.
This article is for educational purposes only and is not personalized financial advice.
