The Fed released its latest consumer credit report yesterday afternoon and revealed that revolving credit -- which generally refers to credit card debt -- dropped by a whopping 9.7 percent. That means people are paying off their debt and also taking less on to begin with. Could this mean that we are finally getting smart about our finances?
In some ways, the drop is surprising, because when times are tough, some people may need to rely more heavily on emergency money sources, such as credit card debt. But in general, most people have the opposite reaction, and start clamping down on their spending. During past slowdowns, Bureau of Economic Analysis data shows that people typically start saving more and spending less, as consumers are doing now.
Access to credit also plays a role, of course. Credit card companies have been weeding out their bad customers through higher interest rates, lower credit limits, and less access to credit altogether.