Amazingly, consumer debt has decreased 8.6% since reaching it's peak in September, 2008. Converting that to dallars, that translates to over $1 trillion!

Consumer debt is a reflection of our spending, and consumer spending represents about 70% of our economy. That's why our economy suffered so much in 2009. The government had to step in and pick up the slack, and to make it worse, they had to borrow in order to finance the slack.

A couple of questions come to mind with the drop in consumer debt:

Were consumers really paying down their debt or was the decrease due to write-offs?

The Bureau of Labor Statistics cannot confirm how much of this decrease was due to write-offs, although write-offs did indeed play a role. Regardless, consumers are becoming conscious of their debt levels and are in fact paying them off. This is reflected in the savings rate which has increased from close to 0% at the height of the boom to just under 4%. As a matter of fact, the 4% is a reduction from a recent high of 5%.

Will this getting out of debt trend continue?

It will be interesting to see how long this trend continues. When the economy starts to heat up and the unemployment rate comes down, we'll probably see another increase in consumer debt levels; however, most financial experts agree we won't see debt levels as high as we did in the height of the boom.

Where do you fit in? Perhaps you don't carry debt; if that's the case, good for you. If you do carry debt, would you like to attend the party of folks that not only have decreased their debt level by paying it down (as opposed to having their debt written off) but also able to maintain that lower level of debt? What do you think you could do to achieve that?

CategoriesCredit & Debt