Debt can be a daunting concept, but it’s a part of most people’s financial lives. The good news? Americans’ ability to manage debt is improving, thanks to rising incomes and healthier financial habits. According to a recent report from the New York Fed, while total household debt continues to grow, incomes are rising even faster, making the overall burden on households lighter than it has been in years.

Let’s dive into the key insights from the report and what they mean for you.

As of Q3 2024, total U.S. household debt has reached $17.9 trillion, up by 0.8% from the previous quarter. While this number might sound overwhelming, the reasons behind it provide a clearer picture:

1. Higher Borrowing Capacity: Rising incomes and more people in the workforce mean households can borrow more responsibly.

2. Higher Prices: The cost of homes, vehicles, and everyday goods has increased, pushing people to borrow larger amounts.

Disposable income (money left after taxes) is growing faster than debt. Year-over-year, disposable income grew by 5.5%, outpacing the 3.8% increase in debt. This means that, on average, Americans are in a stronger financial position to handle their obligations.

One way to measure how manageable debt is for households is to compare it to disposable income. Currently, household debt represents just 82% of disposable income, a historically low level. For comparison:

• Before the 2008 financial crisis, this ratio exceeded 115%, contributing to widespread financial instability.

• During the pandemic, government stimulus boosted disposable income, temporarily reducing debt burdens even further.

This healthier debt-to-income ratio indicates that most households are managing their finances more sustainably.

The report also highlights how Americans are staying on top of their debt payments:

Only 1.8% of total household debt is seriously delinquent, matching historically low levels. While some individuals struggle with missed payments, the vast majority of borrowers are keeping up with their obligations.

Foreclosures are also at record lows. In Q3, there were just 41,520 foreclosures, far fewer than the pre-pandemic average of 65,000–90,000 per quarter. Rising home prices mean homeowners in trouble can often sell their property, pay off their mortgage, and avoid foreclosure altogether.

Bankruptcy filings have also dropped significantly. In Q3, only 126,140 consumers filed for bankruptcy—far below the pre-pandemic average.

Even accounts sent to collection agencies are at record lows, with just 4.6% of consumers having a third-party collection on their credit report. This decline reflects improved financial stability across the board.

1. Stronger Financial Foundations: Rising incomes mean more people can take on debt without becoming overburdened.

2. Better Safety Nets: Even if you face financial trouble, options like selling your home can help you avoid severe consequences like foreclosure.

1. Higher Prices, Bigger Loans: While home prices have risen by 50% since 2020, increasing incomes have allowed many to manage larger mortgages responsibly.

2. Healthy Credit Markets: Low delinquency and foreclosure rates indicate a stable housing market, making now a less risky time to buy or refinance.

1. Monitor Your Debt-to-Income Ratio: Keeping debt manageable compared to your income is key to financial health.

2. Pay Attention to Economic Trends: Rising incomes and low delinquencies are positive signs, but staying cautious about borrowing too much remains important.

While household debt continues to rise, Americans are managing it better than ever, thanks to growing incomes and a more cautious approach to borrowing. Whether you’re paying off credit cards, financing a car, or buying a home, the key takeaway is clear: financial stability starts with balancing debt and income.

This strong foundation makes it easier for households to weather economic challenges, ensuring that borrowing remains a tool for achieving goals rather than a source of stress.