Association for Public Policy Analysis & Management

Debt has become a fact of modern American life. According to the Federal Reserve Bank of New York, Americans collectively hold $13 trillion in debt, and the median held by individual households is $60,000. For many, this debt is good debt which enables homeownership or access to education that unlocks wealth-building opportunities and helps pull families through financial shortfalls. But for millions of others, debt weighs heavily on household balance sheets. Credit leveraged as good debt can quickly become difficult to manage. This troublesome debt arises as households experience emergencies, unexpected expenses, or shortfalls in their cash flow.

This paper reviews how the racial wealth divide makes debt particularly burdensome for low- and middle-income African American households, as well as how burdensome debt is further exacerbating the divide. We argue that the historical exclusion of Black Americans from wealth-building opportunities prohibit them from reaping strong returns on purportedly good debt, while simultaneously exposing them to troublesome debt at disproportionately higher rates than their White counterparts. This challenge is amplified by ongoing racial bias in the debt relief options available to Black consumers today. Although these findings are troubling, we also argue that there are pathways to mitigate the negative impacts of debt on Black households. Because these pathways require us to re-engineer practices and address policies at all levels of government, this paper also recommends a series of interventions to ensure that debt isn’t the death knell for Black household finances.