With American consumers taking on more debt than they have in 15 years, minority and low-income consumers are at greatest risk.

Consumers are taking on more debt at a faster rate than in nearly 15 years as the economy heats up. But scholars and experts worry that minority and low-income consumers are taking disproportionate risks by taking on this debt.

Recently released data from the Federal Reserve Bank of New York shows that consumer debt rose by $333 billion in the fourth quarter of 2021, with auto loans and home equity loans driving much of the growth.

Rising prices for new and used cars have forced borrowers to take out larger loans. And they have become necessary purchases as consumers prepare to return to office work. Homebuyers scrambled to close deals before rate hikes pushed mortgage rates higher. Consumers also seemed encouraged by falling, though still high, Covid-19 rates, spending more on travel and leisure options such as bars, restaurants, hotels, airline tickets and fuel.

unequal debt
For consumers already living paycheck to paycheck, rising interest rates are driving up their month-to-month balancing costs and straining already-stressed family budgets. With stimulus packages and government relief measures in hand, consumers have turned their attention back to racking up credit card balances to pay for essentials, the cost of which shows no sign of abating.

Banks, in turn, have relaxed credit requirements, which were lowered at the start of the pandemic-induced recession to meet rising demand and keep lending rising.

"These trends -- rising credit card debt, higher inflation and higher interest rates -- will hit low-income households the hardest," said Ted Rossman, senior industry analyst at Bankrate. “They are inherently more vulnerable because more of their paychecks go toward essentials like housing, food, and transportation, and all of those costs add up fast. You don't have as much flexibility to limit extras."

racial differences
According to scientists, minorities and low-income households face the greatest dangers of consumer debt. Starting from an extremely disadvantaged position with little or no wealth, taking on these burdens skyrockets your debt-to-asset ratio relative to other borrowers, the researchers say.

The ratio of consumer debt to long-term consumers, a measure of what people owe compared to the physical assets they have, splits sharply along racial lines.

It's more than 125 percent for blacks, 70 percent for Latinos, about 100 percent for other or multiracial races, and just over 50 percent for whites, according to data compiled by Christian Weller, a professor of public policy and public affairs at the University of London. , Massachusetts, Boston, and Senior Fellow of the Center for American Progress, a progressive think tank.

"It's risky debt," he said. "It's an income risk for the people who borrowed the money."