Bettering Debt – U.S. Debt Rates and Improvements over Time [Data Study]

In the minds of many Americans, debt represents a fiscal risk. When we borrow, we accept the burden of repayment – a responsibility not to be taken lightly. Yet, according to financial experts and economists, the true nature of debt can be far more positive for individuals, families, and the nation.

Indeed, taking on debt can be a wise decision, fueling worthwhile investments such as homes, small businesses, and college educations. Moreover, household debt can indicate economic optimism: When Americans feel hopeful about their financial futures, they commit to purchases that can improve their quality of life. Given these nuanced realities, what do the country’s current borrowing habits say about our economy?

To explore this subject, we dug into the latest household debt data from the Federal Reserve Bank of New York. Our findings track evolutions in borrowing behavior over time, illustrating how Americans are obtaining and using credit. Across the nation, how are people borrowing, repaying, and moving toward their financial goals? Read on to find out.

Average Debts Across America

In the final quarter of 2018, levels of household debt hit record highs. But in some corners of the country, individuals typically possessed far less personal debt than the national average of $50,090. In West Virginia, for example, residents had less than $30,000 in debt, on average. In Mississippi and Arkansas, debt burdens were similarly modest.

These statistics may reflect low costs of living: In many of the states with the smallest per-capita debt averages, both basic necessities and real estate can be strikingly inexpensive. This dynamic is evidenced in credit card spending. In Mississippi, which had the lowest average credit card debt, basic purchases like groceries can cost roughly half of what they would in New York.

A similar reality was clear in West Virginia’s real estate market, which offers some of the nation’s most affordable home prices. Accordingly, the average West Virginia resident with a mortgage owed just $15,430 – less than half the national average.

But low borrowing rates in these states may also reflect problems in access to credit in rural areas. As economic scholars note, small banks that once served rural towns have rapidly vanished in recent decades. As a result, residents of remote corners of West Virginia and Mississippi may struggle to obtain loans of any kind, even to finance modest purchases.

Increases and Improvement

Consumer debt peaked in 2008, the first full year of the Great Recession. Over the next decade, per-capita debt plunged, then rebounded nearly to pre-recession levels. Cumulatively, the average American’s debt increased by nearly 50% between 2003 and 2018.

While this may seem concerning, strong GDP growth and low debt default rates suggest our economy is much stronger than it was a decade ago. Additionally, the ratio of debt to disposable income has steadily improved since 2008, indicating that most Americans’ borrowing is sensibly relative to their earnings. Furthermore, some states have seen much smaller debt increases – or even reductions in certain types of borrowing.

In Michigan, for example, the average personal debt grew only 14% from 2003 to 2018, while credit card and mortgage debt actually declined slightly. The state has enjoyed strong economic growth in the 21st century, perhaps enabling residents to pay down their debts.

Overall, however, rising debt may signal some economic positives. Home prices are far higher than they were in 2003, so buyers are borrowing more accordingly. Seen in this light, taking on debt may be an important investment for the future, rather than an imprudent move.

Applications by Generation

In recent years, how many Americans have successfully sought new sources of credit? The answer varies somewhat by age group, with younger Americans slightly more likely to apply and be approved. This trend reflects the economic realities of young adulthood: People aged 40 and younger may have more reasons to borrow capital, such as paying for school or purchasing a first home.

As people age and earn higher incomes, by contrast, they may be less likely to borrow. Or perhaps middle age brings contentment with current credit: If you’ve had the same credit card for years, you may not feel the urge to apply for another. Americans 60 and older were even less likely to apply for new credit and get it.

From 2018 to 2019, however, successful credit applications increased by about 11% overall. And the largest increase occurred in the middle-aged range, with approved applications rising 24% among those aged 40 to 59. In part, this trend may reflect parental generosity: More parents are taking out loans to put their kids through college. 

New Cards, New Limits

In 2019, Americans were far more successful in obtaining new credit cards than in the year prior. Applications for new cards were rejected just 15% of the time, or roughly 33% less often than in 2018. One reason may relate to the employment landscape: As unemployment declines, wages are rising in the tight labor market. Accordingly, many borrowers can pay down existing debts and report higher incomes, both keys to credit card approval.

It’s especially striking that credit card rejection rates fell even as overall applications increased by about 9% in 2019. Indeed, applications for new cards have particularly soared among middle-aged and older Americans. This data suggests that consumers are gravitating toward new cards rather than asking for more from their current lenders. Given the perks and rewards that opening a new card can entail, it’s easy to understand this calculus.

Access to Ownership

Much as with credit card applications, home loan rejection rates fell significantly from 2018 to 2019. This trend may reflect lenders adopting more accessible mortgage standards, or the fact that the strong economy has placed many Americans in a position to buy homes. Moreover, applications for home-based loans increased slightly in 2019, perhaps because mortgage interest rates have plunged to historic lows in recent months.

Home loan applications increased among Americans aged 40 and younger, suggesting that millennials continue to warm up slowly to the prospect of homeownership. But an even larger surge occurred in the 40-to-59 age range, where applications rose by 27% in 2019.

Some of this activity may be longtime homeowners looking to capitalize on the opportunity to refinance at a lower interest rate. But this data may also indicate that many middle-aged buyers, whose previous dreams of homeownership were dashed by the Great Recession, are once again confident enough to buy. Conversely, home loan applications actually fell among those aged 60 and older, many of who are ostensibly settled in their current living situations.

Borrowing Strategically, Repaying Successfully

Our findings provide evidence of repayment progress, with average credit card debt declining in many states in recent years. And while mortgage debt has substantially increased through much of the country, this trend partially reflects healthy housing market activity. Collectively, our results suggest a certain optimism among the American public, with many households utilizing credit to make major purchases. Only time will reveal whether these choices were wise or ill-advised. However households choose to employ credit, their choices should be guided by expert advice. When your borrowing is rooted in careful research, you can access credit with confidence.

At Upgraded Points, we specialize in authoritative and unbiased information about a variety of credit cards, helping consumers maximize their borrowing benefits. From interest rates and annual fees to perks and rewards, the nuances of credit card offers can be difficult to navigate. Our resources help potential borrowers select the cards best suited to their particular needs, so they don’t overlook valuable advantages. To see the difference that upgrading your card could make, explore our site today.

Methodology and Limitations

We used publicly available data from the New York Fed Consumer Credit Panel/Equifax and the Survey of Consumer Expectations provided by the Federal Reserve Bank of New York. The specific files we used from their site are area_report_by_year.xlsx, and we looked at the fourth quarter of 2003 and the fourth quarter of 2018. We also used FRBNY-SCE-Data.xlsx and looked at data from June 2018 and June 2019. For visuals three, four, and five, the data examined was from June 2018 and June 2019. Survey respondents were asked if they had applied for any type of credit in the last 12 months, and if so, if they were accepted for all of them. Rejection rates are among only those who applied for each type of credit. Per-capita numbers are per person with a credit report (and are not conditional on having that type of debt).

You can read more on the FRBNY methodology for their Survey of Consumer Expectations here.

Fair Use Statement

We hope this project brings nuance to discussions of personal debt, illustrating how borrowing occurs differently across various regions and demographics. If you’d like to share our work with your friends and followers, we welcome you to do so for any noncommercial purpose. If you use our images or information, please link back to this page to attribute our team appropriately.