In September, consumer credit card debt increased a mere 1.2%. Although up from August's rise of only .4%, it still represents a significant decline from the 7% increase in 2007. Consumers owe $971 billion, which is $3,184 of credit card debt per person, or $8,299 per household. Find out how to responsibly manage and reduce your credit card debt.
The Federal Reserve's G-19 Consumer Credit report stated that non-revolving debt, like loans for auto, furniture and consumer electronics, rose 4.4%. This was after declining 4.9% in August, the first decline since 2005. Non-revolving debt is $1.617 trillion, or $5,298 per person or $13,821 per household. Note: This estimate is based on 305 million people in the U.S., an average of 2.6 persons per household, and 117 million households. (Source: Federal Reserve, G.19 Release, November 7, 2008; U.S. Census, Population Clock; Average Household Size)
The slow growth in credit card use shows the strain that Main Street is experiencing as a result of the Banking Credit Crisis. In addition, a tightening job market and higher unemployment means fewer families can afford credit card and auto purchases. This is a reversal from the last two years, when the declining housing market caused many families to switch from home equity loans to credit cards to finance purchases.
What It Means to You
A soft economy caused by declining credit card debt is a good time to reduce your own financial vulnerability. Here are some helpful ways to reduce your own credit card debt....and avoid becoming a statistic in the Federal Reserve’s G-19 report next month.
I want to save more and reduce my debt but if we all do that, will it have an even more negative impact on the economy? Didn’t the high savings rate prolong Japan’s economic problems?
Hi Dawn,
No, the banks and the government colluded to hide the bad debt on their books. This meant the banks didn’t ever gain enough capital to loan, which kept the economy slow.
Americans need to get out of debt. Once they do that, they can either save or buy stocks or other investments. This will help put money into the economy, which will help it grow.
Kimberly
Kimberly,
I agree that Americans have too much debt, but it seems to me that if we all started paying off our debts, there would be a contraction of the money supply.
The way the Fed is stimulating the economy right now is to put money into the banks, so they will start lending again.
So if more people borrowing would be a stimulant, then why wouldn’t it put brakes on the economy if people paid off their debts?
Norm
Hi Norm,
You are correct that, if everyone paid off their debt, it would be a drag on consumer spending and therefore economic growth.
However, as much as I might wish otherwise, not everyone in America reads my blog. It is a good financial practice for people to reduce their debt. Therefore, I feel comfortable advising my readers to do what is best for them, without worrying that it will slow down the economy.
Kimberly