Source: Board of Governors of the Federal Reserve System,"Household Debt Service Burden;"published: 24 March 2000;.

http://www.federalreserve.gov/rnd.htm

The household debt-service burden is the ratio of household debtpayments to disposable income.

The limitations of current sources of data make the calculation of theratio especially difficult. The ideal data set for such a calculation wouldhave the required payments on every loan held by every household inthe United States. Such a data set is not available, and thus thecalculated series is only a rough approximation of the currentdebt-service burden faced by households. Nonetheless, this roughapproximation may be useful if, by using the same method and dataseries over time, it generates a time series that captures the importantchanges in household debt service payments. The series will be revisedas better data or improved methods of estimation become available.

To create the measure of burden, payments are calculated separatelyfor revolving debt and for each type of closed-end debt, and the sumof these payments is divided by disposable personal income asreported in the national income and product accounts. For revolvingdebt, the assumed required minimum payment is 2-1/2 percent of thebalance per month. This estimate is based on the January 1999 SeniorLoan Officer Opinion Survey, in which most banks indicated thatrequired monthly minimum payments on credit cards ranged between 2percent and 3 percent and had not changed substantially over theprevious decade.

Payments on closed-end loans, which are calculated for each majorcategory of closed-end loan, are derived from the loan amountoutstanding, the average interest rate, and the remaining maturity on thestock of outstanding debt.

Estimates of the amount of mortgage debt are taken from the FederalReserve Board's flow of funds accounts, and estimates of outstandingconsumer debt are taken from the Federal Reserve's G.19 statisticalrelease. For consumer debt, a more detailed breakdown by type ofclosed-end loan is obtained using internal Federal Reserve estimatesand data from the installment credit publications of the AmericanBankers Association.

Interest rates on closed-end consumer loans are obtained from theFederal Reserve's G.19 and G.20 statistical releases, with the exceptionof student loan rates, which are obtained from the Student LoanMarketing Association (Sallie Mae). An estimate of the interest rate onthe stock of outstanding debt is obtained by weighting the recenthistory of interest rates using information on the age of outstandingloans in the Federal Reserve Board's Survey of Consumer Finances.The interest rate on the stock of outstanding mortgage debt is anestimate provided by the U.S. Department of Commerce, Bureau ofEconomic Analysis.

Maturity series for consumer debt are taken from the G.19 release andfrom the American Bankers Association's installment creditpublications. Maturity series for mortgage debt are obtained fromCredit Suisse First Boston.

Quarterly values for the total debt-service burden as well as values forthe consumer debt and mortgage debt-service burden are availablefrom 1980 forward.