Prior to the recession, the average consumer carried debt equal to the entire gross domestic product of the United States. To put this in plain language, Americans had in debt what the entire country produces in goods and services each year. Now, the amount of debt held by households is equal to 85% of GDP, and some say it may fall as low as 75% by the fourth quarter of 2013.
Credit card balances were among the sharpest decliners. Revolving balances are down 19% from 2008 and have fallen at a 6.8% seasonally adjusted annual rate, indicating that consumers are still cutting back and paying off high interest obligations. Non-revolving debt is the only growth story in consumer lending, mostly due to a rising interest in a college education.
According to data from the American Bankers Association, monthly rent and debt payments relative to income is now at the lowest level for the average American household since 1984. In short, consumers spend far less of their income on debt payments and servicing, and can likely tolerate higher balances going forward.
Debt as a percentage of household income rested at 113.2% in June, down from a ratio of 134.4% at the peak in 2007. Sustained employment and economic growth could continue to drive down the burden of debt service on the average American consumer.
Historically, consumers rush quickly to maintain high debt balances. This hasn’t been seen in recent times, as many remember with concern the days during the financial crisis. Economists wonder if living generations have learned a lesson similar to those during the Great Depression more than 80 years ago.
Source:
creditcards.com
