Household Debt Burden

What overall measure is most useful to appraise trends in consumers’ debt burden over time? The news media tends to focus on a comparison of total consumer debit, (sometimes including mortgage debt) to disposable, or after-tax, income. A basic problem with this measure is that consumers do not have to repay all of their debt at one time from their income. In addition, if maturities lengthen, as in the case of automobile loans, monthly payments are reduced, with the percentage of total debt to income is unchanged.

The Federal Reserve had just released a revised series estimating the percentage of debt payments to disposable personal income for the period from January, 980 to the present. “Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.” The latest data available are for mid-1999, and the accompanying chart traces the changes in the ratios over the past ten years. 

Over the period covered by the entire series, the lowest ratio of payments to disposable income was 11.57 percent in the fourth quarter of 1993. The highest ratio of debt payments to income was 14.24 percent in the fourth quarter of 1986. Over the 1990-1999 period shown in the chart, declining mortgage rates have offset rising payments on consumer debt. On balance, it appears that consumers have been reasonably constrained in their use of debt. It is also worth noting that in mid-1990, consumers' payments on their debts amounted to 13.33 percent of their after-tax income and had dropped to 13.15 percent of disposable income in mid-1999. Over the same period consumers' fillings for bankruptcy rose from 660,796 to 1,352,030.