Consumer debt still seems manageable… for now

It’s no secret today’s economy is casting a shadow over many people’s lives, whether at the grocery store, gas pump or even keeping the lights on at home.

But, so far, Americans, especially homeowners, appear to be holidng steady when it comes to their debt.

Total mortgage balances have risen in 11 straight quarters dating back to the second quarter of 2023, according to the Federal Reserve Bank of New York, but that’s to be expected with home prices increasing. The growth has been consistent and relatively modest, averaging 0.92% per quarter for a cumulative increase of 9.7% during that span. Mortgage balances sit at just over $13 trillion, an all-time record, but that isn’t necessarily concerning because delinquencies remain low and home equity is near record highs. Growth like this is sustainable and doesn’t indicate any sort of consumer distress in the housing market.

Other categories, such as credit cards, are more alarming.

On May 12, we’ll see what the latest data from the NY Fed shows when the 2026 Q1 report releases. I expect more measured growth for mortgages, home equity debt and student loans, with auto loan and credit card debt likely dipping slightly. Auto sales have slowed due to tariffs and high gas prices, while credit card debt usually falls in the first three months of the year due to tax refunds and New Year’s resolutions to pay down high-cost debt.

A concern running through my mind, however, is that we can’t ignore that other debt — that is, the $5.6 trillion that includes credit cards, auto loans, student loans, revolving home equity debt and more — when we’re talking about how people are managing their mortgages. After all, all debt comes for your wallet in the end, and other forms of consumer debt have been rising at much faster rates than mortgage balances. Since Q2 2023, total U.S. credit card balances, for instance, are up 24%  and home equity line of credit (HELOC) balances are up 26%. (Sometimes these even go hand in hand, as credit card debtors leverage home equity to consolidate their debt and lower their interest rates from, say, 20% to 7%.)

Already these dramatic jumps have contributed to much higher delinquency rates, particularly on credit cards. At present, 12.7% of credit card balances are 90 or more days past due, the highest figure since early 2011. While a mere 0.92% of mortgage balances are 90+ days in arrears, that figure has doubled since Q2 2023. It’s still quite low (even lower than it was just prior to the pandemic), and indicates homeowners are generally still able to pay their mortgages, but it does raise the questions of how close they are to the breaking point and whether renters are in any better shape.

Homeowners are generally faring better than renters

We’ve heard a lot about the K-shaped economy over the past few years (the idea that the rich are getting richer and the poor are getting poorer). Homeowners tend to congregate toward the upper part of the “K” since homeownership generally requires you to have sufficient wealth and credit quality. In fact, the median net worth of a homeowner was $396,200, according to a 2022 Federal Reserve report, compared with $10,400 for renters. The gap has likely widened since then, in line with the broader trend of rising economic inequality.

We generally call mortgage debt “good debt” because the interest rates are substantially lower than those of “bad debt” (such as credit card debt), and the debt contributes to your future wealth potential in the form of equity.

While it’s alarming, on the face of it, that Americans have a record $18.78 trillion in debt as of the Q4 2025 report, the household debt to income ratio is actually low compared with the recent past. That’s largely because the unemployment rate is relatively low and wages have been rising. It doesn’t feel great that everything costs so much these days, but many Americans still have the capacity to spend — and not just on essentials such as housing and groceries but also on discretionary items. Travel, dining out, live entertainment — these sectors all continue to grow.

Recent bank and credit card issuer earnings reports were positive about the state of the consumer. Yes, there has to be a tipping point out there somewhere, but we clearly haven’t reached it yet. Even after years of continued price growth and the spike in gas prices resulting from the Iran war, American consumers continue to spend.

“The impressive statistic… I would focus on is 18% growth in retail luxury spend, 12% growth in premium cabin on airlines and global travel bookings being at a record high,” American Express CEO Stephen Squeri recently told Yahoo Finance. “That tells you they [our cardholders] don’t care about gas prices.”

Amex’s business has traditionally skewed more upper-crust, but Main Street banks are saying similar things. Chase CFO Jeremy Barnum, for example, described consumers’ finances as “fundamentally healthy” during his company’s April earnings call. He added, “We’ve looked to see if there’s kind of evidence in there of people… decreasing other discretionary spending to adjust for higher gas prices. But it’s just kind of not enough yet to be visible.”

We’ll see whether Tuesday’s NY Fed report reveals any cracks in this view, but I doubt it. Gas prices didn’t spike until late in the first quarter, so the time period included in this report was mostly unaffected. Even now, as of the second week of May, impacts on overall spending appear limited at best. Consumers are in a sour mood, but they’re still spending. Cumulative effects could mount at some point, but it hasn’t happened yet. A relatively strong job market is still supporting solid consumer spending.

Home equity borrowing has lagged

One surprising slowdown among homeowners has occurred in home equity borrowing. But it’s not a new phenomenon: The peak in HELOC debt came 17 years ago. Since then, HELOC balances have declined by more than a third while Americans have amassed near-record amounts of potential equity to tap. Collectively, Americans are sitting on about $34 trillion in accumulated home equity, nearly four times as much as they had in 2009. 

There’s that K-shaped economy again in which homeowners already near the upper-half of the K accumulate additional wealth.

HELOC rates are about a percentage point and a half higher now than they were in 2009, although the current average of about 7% is still attractive. There has been increased regulation since the housing crisis, of course, and home improvement spending has been tepid the past few years for multiple reasons. Notably, many Americans accelerated projects in 2020 and 2021 when they were stuck at home during the pandemic. Since then, more dollars have flowed to experiences such as travel. Inflation and economic uncertainty (exacerbated by tariffs, the Iran war, etc.) have also led some homeowners to postpone projects.

Still, we keep hearing about homeowners being reluctant to move since they’re sitting on incredibly low mortgage rates secured during the pandemic. It follows that we should be seeing more stayers-in-place using their near-record equity stakes to fund new roofs, updated kitchens and other renovations at reasonable interest rates. Used properly, home equity borrowing can fall under the “good debt” umbrella. Not to go on vacation or buy a boat, that is, but to invest in needed home improvements.

Bettering your home’s condition and livability makes sense from a quality of life perspective. It also protects your equity and puts you in a more advantageous position to sell at some point. Homeownership is the primary wealth-builder for millions of American households. In fact, if you’re a new buyer, purchasing a fixer-upper can be a quick ticket to building valuable equity. It may require some capital and/or sweat equity, but it can be well worth it. And it pays to be creative when other factors, such as elevated home prices and mortgage rates, aren’t working in your favor.

The bottom line

You wouldn’t know it from looking at the dismally low consumer sentiment figures, but Americans’ debt loads are actually in a healthy place overall, particularly among homeowners whose often biggest debt enables substantial wealth building. That’s not meant to minimize the struggles that exist at the individual level. Foreclosures, for instance, recently hit a six-year high, but that increase has come off a low base. The struggles are manifesting in pockets of consumers, not across the board.

As far as the broader economy is concerned, the current growth trajectories of Americans’ debts and delinquency rates appear to be manageable. Credit is flowing freely and the economy is growing, supported by rising consumer spending and borrowing. The best advice is to spend and borrow smartly, starting with your home, which is likely the biggest purchase you’ll ever make.

Have a question about your finances? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.