PLANO, Texas—Rising household debt is sending mixed signals for financial institutions, as consumers continue to borrow heavily but show only modest signs of strain, one economist notes.
Brian Turner, president and chief economist at Meridian Economics, pointed out that according to the Federal Reserve Bank of New York, total household debt climbed by $197 billion in the third quarter of 2025 to a record $18.59 trillion, the highest level on record.
While delinquencies have increased to their highest since early 2020, they remain within pre-pandemic norms—suggesting credit performance is holding steady even as borrowers take on more debt, he explained.
For lenders, the data highlight a bifurcated consumer landscape: affluent households are driving loan and spending growth, while lower-income borrowers are showing early stress, particularly in credit cards and subprime segments.
Mortgage balances grew by $137 billion in the quarter to a total of $13.07 trillion at the end of September, while credit card balances rose $24 billion to a total of $1.23 trillion at the end of the quarter. Auto loan balances were steady at $1.66 trillion, while student loan balances increased $15 billion to a total of $1.65 trillion.
“Household debt balances are growing at a moderate pace, with delinquency rates stabilizing,” Turner said. “The relatively low mortgage delinquency reflects the resilience of the housing market, driven by ample home equity and tight underwriting standards."
Overall, delinquency remained elevated in the third quarter of 2025, with 4.5% of outstanding debt in some stage of delinquency, the highest level since early 2020, Turner noted.
“Transitions into serious delinquencies, defined as 90 days or more delinquent, were largely stable for auto loans, credit cards and mortgages. Overall debt flow into serious delinquency was 3.03% in the third quarter of 2025, up from 1.68% in the same quarter last year,” he said.
“The Federal Reserve cut interest rates for the second consecutive meeting in October despite elevated inflation amid signs of a weakening labor market. Policymakers have cautioned that while economic growth has been solid overall, there are signs it's being driven by higher income consumers while less affluent households are struggling,” Turner said. “Federal Reserve Chairman Powell said at his press conference following the rate cut decision that there is a ‘bifurcated economy’ and that ‘consumers at the lower end are struggling and buying less and shifting to lower-cost products, but that at the top, people are spending at the higher end of income and wealth.’"
Though delinquencies are their heights since 2020, they are roughly in line with pre-pandemic norms and nowhere near the 11% levels seen in 2009, Turner pointed out.
“The findings suggest that while Americans continue to rack up debt, they aren’t falling behind on their payments at an alarming rate. Household debt-to-income ratio is lower now than it was from the late 1990s through the late 2010s,” Turner explained. “There continues to be a ‘great divide’ in the consumer market with the top 10% of U.S. households now accounting for nearly 50% of all consumer spending. It's also in the credit market where the share of higher-risk, subprime borrowers has reached elevated levels not seen since 2019.”