While government continues to kick the deficit can down the road, consumers have no such luxury. Whether because it's the right thing to do, or we have no choice, we have been making steady inroads on the mountain of personal debt and credit balances built up prior to the recession.
Ironically, consumer efforts to rebuild personal balance sheets are probably delaying the recovery a bit. If we were out there melting our credit cards, we would be supporting more job creation. But our "deleveraging," as the experts call it, sets the stage for a healthy and long-lived recovery. Now, if only Congress would agree on a federal deficit reduction plan.
The Federal Reserve Bank of New York looks at consumer debt and credit trends every quarter. It recently released its snapshot of how things stood at the end of June. Total outstanding consumer debt was about $11.4 trillion, down from its peak of $12.7 trillion in the third quarter of 2008 during the recession. Except for a bump in the first quarter of last year, consumers have been steadily paying off their debts over the past four years.
The New York Fed breaks out five major consumer debt categories: home mortgages, home equity loans, auto loans, credit card debt, and student loans. Except for the explosion in student loans, all other areas continue to post improved performance.
The numbers of Americans with bankruptcy notations on their credit reports fell for the sixth straight quarter and totaled 399,000, down nearly 16 percent from a year ago. It peaked in the second quarter of 2010 at more than 621,000. Mortgage foreclosures numbered more than 255,000, the New York Fed reported. This figure also has been dropping, and is now down 55 percent from its recent peak of 566,000, reached during the second quarter of 2009.
Loan delinquencies also continued to decline, with repayments overdue on 9 percent of outstanding debt. That compares with a recent high of 11.9 percent at the end of 2009. But we have a long way to go here. In early 2006, individuals were behind on only 3.6 percent of their debt repayments.
Consumers continued to shed credit cards, although the pace of contraction has slowed. Since the middle of 2008, the number of open credit card accounts is down more than 110 million, to 383 million from 496 million. Outstanding credit card balances are down a similar amount, to $672 billion from $866 billion at the end of 2008. Credit card delinquencies of 90 days or more have declined steadily to 10.9 percent in June from nearly 13.75 percent in June 2010.
Detroit's recovery showed up in continued increases in outstanding auto loans. New loans rose $82 billion, or 14 percent, during the quarter. The volume of outstanding auto loans is $750 billion, up nearly $50 billion from mid-2010. Delinquency rates on auto loans dropped to 4.2 percent last quarter, and are down from nearly 5.3 percent at the end of 2010.
Student loans, however, tell a different story, the report said. "Since the peak in household debt in [the third quarter of 2008], student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion." Outstanding student loans totaled $914 billion at the end of June, and repayments on 8.9 percent of outstanding loans were more than 90 days late. The delinquency rate was up a bit from the first quarter, but is down from 9.17 percent in September 2010. However, the Fed report noted that nearly half of student loans are currently exempt from repayments because of a variety of deferral programs. "This implies that among loans in the repayment cycle delinquency rates are roughly twice as high," it said.
On an individual basis, the average amount of debt carried by consumers with credit reports was $47,360 at the end of June. That's down by $5,680, or nearly 22 percent, from its recent peak of $53,040 in September 2008. However, our recent good habits are still overshadowed by the debt spree we were on earlier in the millennium. The average amount of debt carried by consumers 12 years ago was less than $24,000.