Households don’t fail because a debt balance looks scary on paper. They fail when payments stop fitting inside cash flow.
That’s why “debt service” (monthly payments) matters more than the raw balance.
Balance vs payment
- Balance is a stock (how much you owe).
- Payment is a flow (what you must pay every month).
Rates can make the payment bigger even if the balance doesn’t change:
- variable-rate debt reprices (credit cards, some loans),
- new borrowing gets expensive,
- refinancing becomes harder.
The rate chain (why FEDFUNDS shows up everywhere)
The Federal Reserve’s policy rate influences:
- short-term borrowing (credit cards, lines of credit),
- mortgage rates (through bond yields and risk premiums),
- business costs (which can affect hiring and wages).
So a “rates shock” can hit a household from multiple angles at once.
Practical warning signs
If you’re trying to stay above the line, watch for:
- monthly payment creep (minimums rising),
- shrinking surplus after essentials,
- “temporary” borrowing becoming permanent,
- delinquencies rising in the broader economy (stress spreading).
A safer way to think about debt
Instead of asking “How much do I owe?”, ask:
- “How many months could I pay everything if income dropped?”
- “Which payments can reprice upward quickly?”
- “Which costs are fixed and non-negotiable (housing, insurance)?”
These questions map directly to runway.
Links (primary)
- Policy rate (FRED): https://fred.stlouisfed.org/series/FEDFUNDS
- 30Y mortgage rate (FRED): https://fred.stlouisfed.org/series/MORTGAGE30US
- Household debt & credit (NY Fed): https://www.newyorkfed.org/microeconomics/hhdc.html
Disclaimer
This is educational content only and not financial, legal, medical, or investment advice.