U.S. Households’ Debt Drops to Levels before Recession

by San Antonio Attorney

The amount of credit card debt, home mortgages, and the majority of other consumer debts now is comparable to 2006 or early on, the Moody’s Analytics data suggests.

After a long time of consumer curtailment, U.S. households have minimized their debt loads, which used to be out of control, into levels before recession, mainly eliminating a big hurdle towards a much swifter economic recovery.

The student loans, on the other hand, have increased because people are flooding into colleges and the costs are rising.

Overall, families nowadays are spending under 16% of their income after tax to pay lease and debts. According to the Federal Reserve data, this is the lowest share from 1984.

Some experts predict a large increase in spending in the near future: Consumers are still wary as a result of what they have experienced in the past few years and due to anxiety of what is coming up next.

What is helping to reduce debts is the frugality by numerous households. The long process of reducing liabilities seems almost done, and that should help the economy.

Based on this month’s consumer survey conducted by the University of Michigan, consumers feel more optimistic today than they have during the past five years because they have less debt. That could lead to a bit more risk-taking and spending.

However, a number of economists continue to be skeptical concerning the economic outlook.

Just recently, the International Monetary Fund released its gloomiest outlook since 2009 for global economic growth. It warns the risks of a critical downturn that is “alarmingly high.” Factors include slower economic growth in China as well as other big economies that are developing, and the Eurozone financial crisis.

The employment rate in the United States has been average, and inflation-adjusted incomes of employees are at a standstill. In addition, many individuals and businesses are preparing for some tax increases in 2013 or the possibility of something a lot worse if the policymakers in Washington do not come up with a program to avoid deeper tax hikes and budget cuts scheduled to start in January.

A significant test of the sentiment of consumers is when the holiday purchasing season begins next month.

In the second quarter of 2012, the average credit card balance of American households was $4,940, which is less than 24% from a maximum of $6,500 in the same quarter in 2008, according to Moody’s. The circulation of credit cards has fallen to around 470 million from almost 600 million in 2008.


–  Chapter 7 bankruptcy is an option for wiping out debt when you do not have sufficient regular income. It was designed to eliminate debt without requiring debtors to pay their creditors. San Antonio Attorneys specializing in bankruptcy can tell you if filing Chapter 7 while you are unemployed may be beneficial to you.

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