Debt Levels Surge Across Key Categories
U.S. household debt reached a new milestone in the second quarter of 2025, climbing by $185 billion to a total of $18.39 trillion, according to data from the Federal Reserve Bank of New York. Mortgage balances drove the increase, rising by $131 billion and bringing the total to $12.94 trillion. Despite ongoing concerns about affordability, housing activity remained stable, keeping mortgage borrowing strong.
Auto loan originations also posted significant gains, hitting $188 billion — a jump from $166 billion in the previous quarter. Credit card balances rose by $27 billion, accompanied by a $78 billion expansion in aggregate credit limits. This continued extension of credit by lenders suggests ongoing confidence in consumer borrowing capacity.
Rising Delinquencies Signal Growing Strain
While debt growth reflects active borrowing, it also comes with growing financial pressure. Student loan delinquencies have surged following the end of payment pauses. The share of seriously delinquent student debt jumped to 12.9% — a stark contrast to 0.8% a year earlier. More than 2.2 million borrowers have seen their credit scores drop by over 100 points, and 1 million have experienced declines of 150 points or more.
These credit shocks are expected to significantly impact spending behavior. Bloomberg Economics estimates that deteriorating credit profiles could remove up to $63 billion in annual consumer spending, adding stress to an already volatile economic environment.
High-Income Households Also Under Pressure
Delinquency rates on mortgages and home equity lines of credit have also increased slightly. Although performance in these sectors remains strong relative to historical norms, the broader financial picture is shifting. Notably, 70% of households earning over $100,000 now report living paycheck to paycheck — a sign that financial strain is no longer limited to lower-income groups.
This erosion in financial resilience among higher earners underscores the impact of rising housing costs and persistent inflation, even as wages remain relatively stable.
Younger Generations Embrace Alternative Credit
With traditional credit products becoming harder to manage, younger consumers are increasingly turning to short-term alternatives. Buy now, pay later (BNPL) services have grown in popularity, especially among Generation Z and younger millennials. In fact, 58% of these consumers now prefer BNPL options over traditional credit cards.
This shift is reshaping shopping behavior as well. Some 43% of consumers now base their purchasing decisions on the availability of installment payment options. Simultaneously, 69% of Gen Z respondents report living paycheck to paycheck, and one in three U.S. adults face unexpected expenses each year — further reinforcing the demand for flexible financing tools.
Debt Growth Carries Mounting Risks
The current U.S. debt landscape reveals a mix of robust borrowing and rising vulnerability. While consumer credit expansion shows continued demand and lender confidence, the repayment risks are growing. Younger and middle-income households, in particular, are facing new economic realities marked by higher costs and diminished financial buffers.
As borrowing behaviors evolve and more consumers rely on alternative financing, policymakers and lenders will need to adapt to a more complex, fragmented credit ecosystem. The balance between credit growth and financial health remains delicate — and increasingly uncertain.