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Personal debt on the rise in the USA?

Research has shown that during 2021, personal debt levels in the USA did increase significantly, by 5.4% in the third quarter of 2021.

During 2021, consumers with good or better FICO® scores saw their average debt balances grow, and those with poorer credit scores saw the opposite occur. For those consumers who did have high scores, the increase which they saw in their balance was a rebound from the previous year when spending and new purchases were slowed due to a sudden economic pullback.

What is personal debt?

Personal debt is money that is owed as a result of purchasing goods with borrowed money. Personal debt can include mortgages, payday loans, credit card debt, auto loans and student loans (source: WeLendUs). Essentially, personal debt is any money which an individual has borrowed and is yet to make all of the repayments on.

How did the pandemic affect personal debt levels?

It has been reported that during the pandemic, levels of personal debt in the US actually stabilised for various reasons. Firstly, many people were forced to stay indoors and isolate, working from home wherever possible. This meant that there were less expenses, and consequently that debt repayments tended to be made on time.

In addition to this, those who were working and had less expenses than they were typically used to did not have to take out additional loans to fund their lives, again reducing personal debt levels. Lenders were seeing more stable patterns of borrowing and repayment than they were prior to the pandemic.

Furthermore, for those that had secured loans as a form of debt (read more about secured loans here), for those that were unable to make the repayments on their loans, repossession orders may well have been issued.

The last couple of years has brought financial challenges for many people, with the Covid-19 pandemic meaning many people could not carry out their working life as usual, and many people lost their jobs and consequently streams of income altogether.

In addition to this, in recent months the United States has seen high levels of inflation, combined with supply shortages, meaning that for some individuals money will now be tighter than it was during the pandemic.

Why have personal debt levels been seen to increase?

After the pandemic, many predicted that the US would see a steep economic rebound with more people returning to work and businesses operating as they were prior to March 2020. In spite of this, personal debt levels appear to have suffered with inflation continuing to rise and many struggling to return to their pre-pandemic lives.

Mortgages and auto loans are seen to be the two biggest components of an individual’s budget, and are also the debt categories which have seen the fastest growth year-on-year.

In spite of auto inventory shortages and widespread housing shortages, there are now more individuals with personal debt due to mortgages and auto loans in the US than ever before. Those who were looking to purchase a home and were fortunate enough to actually go through with the sale were forced to take out larger loans to purchase them, meaning they are in more debt than they would have been if they bought a property pre-pandemic.

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Written by Ellie

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