May 17 (UPI) -- Household debt in the United States has surpassed the level it was at just prior to the 2008 financial crisis, a sign of economic health that Americans have returned to borrowing at pre-recession levels, the Federal Reserve Bank of New York reported Wednesday.
On its own, high levels of debt can signal trouble for an individual's finances, but on a broader scale it shows banks are confident customers will be able to repay loans for new homes, cars, their education and starting new businesses.
Total U.S. household debt stands at $12.73 trillion as of the first quarter of 2017, the fed report stated. That is slightly more than the $12.68 trillion peak in 2008.
While there is now more debt, the makeup of it is considerably different than in 2008, when banks had begun issuing mortgages despite obvious signs many of the loan seekers could not afford to make the payments. The housing bubble that formed around banks' easy money was the root cause of the 2008 financial crisis that caused the Great Recession.
While mortgage debt is still the largest share of household debt, it is a far lower percentage now than nine years ago. Rather, the rise in debt has come largely from auto loans and student loans, both of which have increased since the recession.
The amount by which Americans are leveraging themselves is another key difference between 2008 and now. Prior to the recession, the average U.S. household was leveraged to 100 percent of its worth, meaning most people owed as much money as they had. Today, Americans are leveraged to about 80 percent of their financial worth, making it much more likely credit card debt and loans will be repaid.
"People need credit to do the things they want to do -- home improvement, start a business. You want credit to flow freely but consistent with people's ability to repay," he said.