Plastic surgery: Falling consumer debt takes toll on spending, may hurt growth

[marmar]

By Irwin Kellner, MarketWatch


PORT WASHINGTON, N.Y. (MarketWatch) -- Consumers are pruning their debts so quickly, you would think that they must be cutting their credit cards in two.

Chalk up another reason to expect a double-dip. People are not only borrowing less, they are actually paying off some of their debts.

According to the Federal Reserve, total household credit outstanding has declined for seven quarters in a row. Such a prolonged period of debt reduction is virtually unparalleled in the postwar era.

Since the end of the Second World War, the usual thing was for consumer credit to rise. In the 1940s, debt would rise about as fast as household incomes, leveling off at around 50% of annual earnings. ...........(more)

The complete piece is at: http://www.marketwatch.com/story/plastic-surgery-and-the-double-dip-2010-07-20

[msongs]

1. we are saving with those 0.0000000000000000000001% interest bearing accounts lol nt

[rfranklin]

2. Most people are saving by paying off 25% credit balances...

so the money isn't going into savings accounts.

[zipplewrath]

3. "Most"?

I remember seeing a stat from a few years ago that suggested that 60% of people paid the balance off every month on their cards. I was a bit suspicious of the number, because I couldn't figure out how they calculated that. But if it was anywhere near correct, "most" people couldn't be saving by paying off 25% loands because they didn't have any.

It would be interesting to know "how" people are paying down debt, there are several possibilities, one of them what you suggest. Of course not incurring new debt is also a good first step. But with wages stagnant, I wonder if people truly have just stopped buying things and therefor have money to pay down debt. It can get a bit contagious once you start. Watching a big debt disappearing can get a tad fun. Not to mention not dealing with the end of the month hand wringing as you try to figure out how all the bills get paid. Sucks for retailers of course, not to mention various "premium" service sellers such as premium cable channels, rent to own, and inflated cell phone plans. I also wonder if people are less likely to make home improvements to a house upon which they are probably already "underwater" to some extent.