Consecutive Drops in Consumer Debt
Consumer debt continues to drop as spending declines…
A bit of good news to report in the drop in consumer debt in March. Falling by $11.1 billion to a total of $2.55 trillion, this is the second straight month of decreased debt accumulation for consumers and three times more than had been forecast. Outstanding revolving debt, such as credit cards, fell $5.4 billion or at a 6.8% annual rate in March, a slower pace than the 12.1% drop in February. It is the sixth decline in the past eight months, after years of steady climbing debt of nearly 7% per year. According to the Federal Reserve, if this pace continues the annual rate would be an impressive drop of 5.2%, the quickest decline since 1990.
In the past 12 months, consumer debt only rose 0.1% overall - the slowest growth in 17 years. These statistics don’t include real estate debt, and outstanding levels of mortgage debt have been declining since the second quarter of 2008. In addition, outstanding levels of non-revolving consumer debt, such as auto loans, student loans, and personal loans, fell by $5.7 billion, or 4.2% annualized, to $1.6 trillion.
Consumer debt declines when consumers pay down their credit balances, lenders write off bad debt and tighten the qualifications for further lending. As more Americans cut back spending and increase their savings, their bottom line improves. The downside is that the trend is a drag on the economy, as consumer spending drops, as well. Banks continue to cut back on existing credit lines and to tighten lending standards making it tougher for some people to get credit.
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