"As credit card debt climbs to $1.23 trillion and auto, retail, and student loan balances continue to rise, American households are increasingly trapped by the economic landscape, focused on making minimum payments rather than understanding how long it will take to become debt-free," say the organizers of Debt Awareness Week (Feb. 16-22) in a news release.
Having too much household debt creates stress and reduces disposable income for everyone who has it. But it can also stymie the plans of those who want to become homeowners.
How Debt Affects Mortgage Applications
That's because mortgage lenders calculate each applicant's debt-to-income ratio (DTI). "To find your ... DTI for a mortgage, just divide your debt payments by your gross monthly income (your income before taxes and deductions). Then multiply the answer by 100," explains Adan Godby in this post.
People whose DTIs exceed preset levels for the type of mortgage for which they're applying are almost certain to see their applications declined. And those with exceptionally low DTIs may well be offered a lower mortgage rate than those close to the limit.
How High Is Household Debt Rising?
The Federal Reserve's G-19 report shows how far household debt has risen over the last year. In December 2025, Americans owed:
- $1.329 trillion on credit cards* — up by $32 billion compared with the last quarter of 2024
- $1.836 trillion on student loans — up by $58 billion compared with the last quarter of 2024
- $1.562 trillion on auto loans — down by $2 billion compared with the last quarter of 2024
Excluding mortgages, household debt grew by $49 billion in a single quarter last year, say the Debt Awareness Week people.
*The earlier mention of $1.23 trillion was for the whole of the last quarter of 2025, not just December.
Why Is Household Debt Rising?
Last year, CBS News reported that "59% of Americans in 2025 don't have enough savings to cover an unexpected $1,000 emergency expense." So, most of us are a major car repair, a serious HVAC issue, or an uninsured hospital visit away from an unavoidable borrowing incident.
But many are finding it hard just to get by. Rising prices, flat wages, and high rents force some to borrow to put food on the table, the lights on and a roof over their heads.
Of course, living on credit is unsustainable. Eventually, lenders will recognize the issue and refuse more borrowing.
However, it's hard to resist the temptation to borrow when it's the only way to provide the necessities of life. Yes, plenty of Americans borrow to maintain a lifestyle they can't afford. But many also do so because they have no choice, no matter how many hours they work, and regardless of how devoid of luxuries their lives are.
Meanwhile, recent innovations such as earned wage access and buy-now-pay-later (BNPL) offers dangle new temptations at every turn. A survey from PartnerCentric last year found 31% of Americans using BNPL to buy groceries.
Financial Fitness for a Mortgage
Most people with a realistic hope of getting their first mortgage soon are unlikely to be in such a dire position. But they need to be aware of how essential effective debt management is to their future loan applications.
Paying down credit cards delivers a double whammy. Not only does it help improve DTI, but lowering balances also tends to improve credit scores. Steering clear of BNPLs in the run-up to an application can also help.
If those aren't currently possible, prospective borrowers should see if they have room to make additional cuts to their household budgets. Yes, that involves lifestyle sacrifices. But nobody said becoming a homeowner would be easy.
