The Republic of Debt: An Unstoppable Runaway Locomotive
The household debt of the Republic of Korea in 2025 is literally a ‘Runaway Locomotive.’ Despite the government’s stringent loan regulations and high interest rates, the increase in household debt shows no signs of stopping.
According to the Bank of Korea, the household credit balance has renewed its all-time high, and the ratio of household debt to GDP (Gross Domestic Product) is hovering around 100%. This is the highest level among major economies in the world, and Korea is the only country where debt exceeds the size of the economy. Experts warn, “We have crossed the river of no return,” and “It has entered a phase that cannot be controlled by simple soft landing measures.”
The Tragedy of ‘Young-kkeul’: The Aftermath of the Real Estate Bubble
The core of the household debt problem lies in Real Estate. The ‘Young-kkeul’ (borrowing up to one’s soul) craze that swept the 20-30s generation a few years ago has returned as a harsh boomerang in the high-interest era.
Young people who borrowed excessively to buy houses are screaming under the burden of interest that has doubled. As housing prices fall or stagnate, they cannot even sell their houses, becoming ‘House Poor’ who are trapped. The myth of “Real Estate Invincibility” has shattered, leaving only a mountain of debt.
The Self-Employed on the Edge of a Cliff
Another detonator of household debt is the loans of the self-employed. Self-employed people who barely held on with loans during the COVID-19 pandemic have reached their limits due to the recent slump in domestic demand and high interest rates.
The loan balance of the self-employed has exceeded 1,000 trillion won, and the delinquency rate is soaring rapidly. In particular, the proportion of ‘multiple debtors’ who borrowed money from three or more financial institutions is high, raising concerns about a chain reaction of insolvency. If the self-employed collapse, it will not end with individual bankruptcies but will deal a direct blow to the banking sector and the local economy.
The Attack of High Interest Rates: Interest Eating Up Income
The era of high interest rates has changed the quality of debt for the worse. The era of low interest rates is over, and an era where interest rates of 5-7% are taken for granted has arrived.
The Debt Service Ratio (DSR) is rising, and households are pouring a significant portion of their income into repaying principal and interest. As disposable income decreases, consumption shrinks, and this recession again reduces income, creating a ‘Vicious Cycle of Debt.’ People are borrowing money not to buy houses or invest, but to pay for living expenses or repay existing interest. This is ‘livelihood-type debt.‘
The Weak Link in Finance: Is the Second Savings Bank Crisis Coming?
As the insolvency of household and self-employed loans becomes visible, red lights have turned on for the soundness of financial institutions.
The delinquency rates of the non-banking sector, such as savings banks, mutual finance, and card companies, rather than commercial banks, are rising dangerously. This is because they handled a large number of high-risk loans such as real estate PF (Project Financing) and credit loans for vulnerable groups. There are concerns that if specific financial institutions face liquidity crises, it could trigger a ‘Bank Run’ (mass withdrawal of deposits) and escalate into a systemic risk for the entire financial sector.
The Dilemma of Government Policy
The government is also in a dilemma regarding the household debt problem.
If they raise interest rates or tighten loan regulations to catch debt, the consumption of the common people and the vitality of companies will die, and the risk of real estate crash will increase. Conversely, if they lower interest rates or relax regulations to boost the economy, it will only fuel the fire of debt increase. Caught between ‘Deleveraging (debt reduction)’ and ‘Economic Stimulus,’ the policy authorities are unable to make bold decisions, only producing makeshift measures.
A Soft Landing or a Crash? The Fate of 2026
The household debt problem is the biggest detonator for the Korean economy. Whether this bomb explodes or is defused safely will determine the fate of the Korean economy in 2026.
Experts emphasize that “painful restructuring is inevitable.” We need to boldly execute the insolvency of marginal borrowers and zombie companies, and strengthen the social safety net to prevent the shock from spreading. We must realize that postponing the solution with more debt only grows the size of the bomb. Now is the time to face the inconvenient truth of debt.
