Aggregate household debt

Aggregate household debt is estimated to reach $16.1 trillion in 2025, reflecting an annualized growth rate of 0.7% over the preceding five years. Despite policy efforts and a slight interest rate cut toward the end of 2024, the continued high level of inflation persists. This inflationary environment erodes purchasing power and household budgets, prompting increased reliance on credit—particularly credit cards—to sustain spending. Persistent pressure from elevated price levels, alongside relatively high interest rates, continues to drive modest increases in aggregate debt. Consumers maintain demand for debt to support purchases amid diminished real income growth.

Several notable shifts have occurred over the five years leading to 2025. Following significant economic disruptions caused by COVID-19 in 2020, consumers took advantage of historically low mortgage rates by increasing home purchases and refinancing existing loans. This activity contributed to higher overall mortgage balances and partially offset declines in other forms of consumer debt, such as credit cards and student loans. With the economy reopening in 2021, revolving credit utilization rebounded, signaling growing consumer confidence. However, this recovery coincided with the onset of sharp inflationary pressures beginning in 2021, fueled by robust consumer demand, wage growth, expanded stimulus measures, and global supply chain constraints. In response, the Federal Reserve implemented aggressive interest rate hikes, raising the federal funds rate from near-zero levels to a range of 3.75% to 4.00% by late 2022.

Despite these monetary tightening measures, headline inflation remained above target throughout 2023 and 2024, encouraging households to rely more heavily on credit to compensate for stagnant real wages. Expansion of household debt during this period was primarily driven by increased utilization of revolving credit accounts as consumers attempted to extend their budgets and mitigate the impact of rising costs. Fiscal policy measures, including the Inflation Reduction Act of 2022, provided some support for household finances but were insufficient to fully offset inflationary impacts. Steady, yet modest, economic and wage growth, in conjunction with persistent inflation, shaped a slow but sustained increase in household indebtedness, concentrated primarily in mortgage and credit card balances.

Over the five-year period leading to 2025, aggregate household debt grew as a result of these joint dynamics. The interplay between initial post-pandemic recovery, tightening monetary policy, high inflation, and shifting consumer behavior underpinned moderate yet persistent growth in total household obligations. By 2025, the aggregate debt burden reflects both the resilience and adaptability of consumer borrowing patterns amidst evolving macroeconomic conditions.