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10 Years Later: How Has America's Consumer Debt Changed Since the Financial Crisis?

Matthew Frankel, CFP, The Motley Fool

September marks 10 years since the collapse of Lehman Brothers, which is widely considered to be the start of the financial crisis in the U.S.

To put it mildly, a lot has changed as a result of the financial crisis and consumer debt is no exception. We all know that excessive debt -- particularly mortgages -- was one of the main causes of the near collapse of the financial industry 10 years ago. Here's a look at how things have changed with mortgages and the other main types of consumer debt.

Businessman running away from wrecking ball with the word debt written on the side.

Image source: Getty Images.

The overall picture

According to a new report by LendingTree, consumer debt has changed significantly in the decade since the financial crisis. Here's a quick look at how total balances of different types of consumer debt has changed.

Type of Consumer Debt

2008 Total

2018 Total

% Change

Mortgages

$10.7 trillion

$10.1 trillion

(5.6%)

Auto loans

$798 billion

$1.13 trillion

41.6%

Credit cards

$986 billion

$1.00 trillion

1.4%

Student loans

$627 billion

$1.53 trillion

144%

Personal loans

$208 billion

$186 billion

(10.6%)

Total

$13.32 trillion

$13.95 trillion

4.7%

Data source: LendingTree.

As you can see, the overall debt carried by Americans hasn't changed dramatically. In fact, it may come as a surprise that Americans now owe nearly 5% more than they did at the onset of the Great Recession.

Additionally, there's more to the story than just the numbers. Here's a rundown of each of the major categories of consumer debt and how they've changed over the past decade.

Mortgages

It shouldn't come as a big surprise that total mortgage debt is lower than it was in 2008. Not only are home prices in some of the hardest-hit markets still lower than their pre-crisis peaks, but banks are far more cautious when it comes to lending money to buy homes.

Specifically, products like the now-infamous NINJA (no income, no job or assets) loans are a thing of the past, and while it's still possible to buy a home with a small down payment, your income and credit need to demonstrate your ability and likelihood of repaying the mortgage.

Here's a statistic that sums up how the mortgage market has changed: In 2018, mortgage levels are about 68% of incomes. In 2008, this metric was at nearly 100%.

Auto loans

Auto loan balances have risen by nearly 42% over the past decade, thanks to a trifecta of catalysts. First, the average selling price of a new vehicle has risen from about $28,350 in 2008 to $36,113 at the end of 2017. Second, buyers are financing their cars over longer loan terms. The average car loan is now 69.5 months long, about half a year longer than it was at the time of the Great Recession. And finally, the subprime auto market has grown dramatically.

Whereas the subprime mortgage market has shrunk dramatically over the past decade, the opposite is true for the auto loan industry. In fact, about one-fourth of car loans are currently made to buyers with subprime or deep-subprime credit ratings.

Credit cards

Since the onset of the financial crisis, credit card balances dropped, but have since picked up. In fact, between the end of 2008 and the beginning of 2013, credit card balances fell by more than 21%. However, with the rebounding economy, consumers seem to have regained their confidence when it comes to their ability to repay credit card debt, as Americans actually owe a bit more now than they did before the financial crisis.

Student loans

Here's the real reason why Americans owe more money now than at the start of the Great Recession: Student loan debt has increased by a staggering 144% over the past decade thanks to soaring college tuition rates. In fact, excluding student loan debt, Americans' overall indebtedness would have actually dropped by about $300 billion since then.

To be fair, student loan debt is generally a better form of debt to have than high-interest credit cards or debt on mortgages you had no business obtaining in the first place. However, it's remarkable that, over the past decade, student loan debt has gone from the fourth-largest type of debt to being second only to mortgages.

The takeaway

Over the past decade, mortgage lending has become far more responsible, while auto lending has gone in the opposite direction in many ways. Furthermore, student loan debt has become more of a burden on Americans than their credit card balances. While the amount of debt Americans have hasn't changed dramatically over the past decade, the nature of the debt has undergone quite a transformation.

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