Recession’s Silver Lining: Consumer Debt On The Decline

Credit Karma recently released its U.S. Credit Score Climate Report reflecting data for July 2009. It revealed a few interesting trends, the most interesting being the continued decline of consumer debt for those currently holding a credit card. This means that, overall, Americans are paying off more than we are spending.

Of course, this is bad news for retailers, and bad news for the overall debt-driven economy. However, our personal economies seem to be improving (assuming you have avoided a layoff or similar household emergency). I’m encouraged to find out people are paying off debt, particularly credit card debt.

In our own household we have reduced outstanding credit card debt by about 30% since May of this year. We have been 100% sold out, gazelle intense about being credit card debt free, and if it weren’t for a few family emergencies we would have closer to 50% paid off by now. The bright side is we did not accumulate any new debts during these mini-crises.

How are others doing? Here’s a look at the Credit Karma survey results from last month.

Average consumers had:

  • $6,818 in credit card debt
  • $193,036 in home mortgage loans
  • $52,559 in home equity loans
  • $14,449 in auto loans
  • $26,368 in student loans

$26,000 in student loan debt? Yikes! That figure and the home equity loans stood out to me. Combined, those two categories alone represent nearly $80,000. Wonder how many people took out those loans for the tax deduction on interest, or to pay off other debt, and just ran it back up again. I also can’t help but feel bad for new graduates who racked up thousands in student loans to find one of the worst job markets in recent history. While the outstanding debt balances still seem high, I’m hopeful that the downward trend continues.

Another nugget from the survey is that Midwesterners seem to have the lowest amount of debt. Wonder what lessons from the Midwest we could learn throughout the rest of the country? I know in many Midwestern states there is a thread of self-sufficiency running through many households not felt in other parts of the country. Homes are probably more reasonably priced than in other areas of the country, too.

I’m curious to hear from you on this one. Have you also paid down debts during the recession? Do you think you would have done it otherwise, or was the negative economy a motivating factor?


  1. I was already in debt-slaying mood before the recession hit, but I did pay down more in a smaller amount of time. I’m within spitting distance of having my credit cards completely paid off with leaves me with only my huge student loan (around $56K) I’ve been paying on it for several years and have already managed to pay down about 15K from the original balance.

  2. I didn’t participate in the recession.
    Status quo here. No debt and didn’t add debt.
    Did kick the savings up a notch tho.
    Enjoying the usual garden and clams, fish, and crabs, all for the taking 🙂

  3. I would have picked up some student loans if there wasn’t a recession. Instead I am saving money and will only have to wait a year to go back to school. Small time frame since it means no more added debt.

    I would have probably moved too in that time. Instead I am paying off my house and going back to school. 🙂 I figured I can wait to move after I finish college, maybe by then I will want to move somewhere totally different.

  4. My wife and I are working on our debt too. We just keep looking at the fact that I only have 7 years left in the Navy and we absolutely have to have a solid financial status before I leave. I don’t trust the economy, so we want to be in the best position possible.

    Midwesterners, at least the type like my father, believe in working hard and paying for what you want. It’s that easy. I wish I had followed my dad’s advice.

  5. Not participating in the recession either.

    I’m one of those strange people who has always hated debt. Doesn’t make me better, just different.

    When I see those figures on average debt, it is one time I’m glad to be below average.

  6. My husband and I racked up a fair amount of CC debt in our marriage. I’ve managed (during the recession) to sell my house, get divorced, and get out of all debt completely…even after a 3 month layoff, in less than a year. It finally feels good to control what (little) I have, and know, that it is mine, and it was hard-earned.

  7. We too are ramping up our emergency fund and trying to pay down the mortgage as aggressively as possible, and we are looking into refinancing to take advantage of better rates (though we have to see if it would mean paying PMI).

    I’m surprised that student debt stuck out to you so strongly. To me, the most startling is almost $7K in credit card debt. Generally, credit card debt was not run up on investments (like a house or education), and it has a much, much higher interest rate than any other form of debt. I can understand people who have extreme situations to deal with needing to resort to cc’s, but I can’t understand the *average* being $7K in debt on cc.

  8. “$6,818 in credit card debt
    $193,036 in home mortgage loans
    $52,559 in home equity loans
    $14,449 in auto loans
    $26,368 in student loans”

    Ay, Chihuahua. No wonder we call ourselves “consumers”.

    With that kind of debt load I’d expect a person to be earning something like $200k per year with a net worth of at least half a million. But it’s presented as the average. If so, this level of spending has been supported by an average income, or a lower than average income, more often than not. How could so many people get the idea that such a high level of spending is a good idea?

    I could understand how a person might easily have *one* of the above debts at any given time, or perhaps two, but not all at once. The only exceptions I can think of are medical emergencies and sustained unemployment.

  9. @Squeaky: I wondered about that, too, but the way the survey results were presented it appeared that of those surveyed this was the average amount of money owed for each debt type. However, I could see this being representative of the average family in America. I used to read a lot of credit reports in my old job, and these numbers look pretty familiar.

    Most people have a mortgage, a car payment or two, a home equity line for remodeling or a pool or to consolidate debt other debts, an old student loan or two, and that few thousand in credit card debt.

    I’m with you, though – it is frightening to me that we now look at a list of nearly $300k in debt and think it’s “normal.” These numbers would have scared the hell out of my grandparents, even if some of it was secured by a house (and that’s not a sure thing these days!).

  10. The $50K in HELOC debt is what’s kind of shocking. However, HELOC debt only costs about 3.25-4.5% now. It’s one of the cheapest debts you can find. We write about using your HELOC to pay down your primary debt in an article entitled “Going Broke To Win Big – HELOC Edition”.

    Student loan debt of 28K doesn’t surprise me one bit. Private universities and MBAs cost $30-40k/yr in tuition a lone.

    I actually think it’s BAD for the economy is savings is going up, although it is good for individuals collectively that their debt is going down. We need consumers to SPEND LIKE CRAZY to drive this economy forward again. Just don’t count on me to do it.


  11. Our only debt was our mortgage, and we haven’t been really affected by the recession. The one adjustment that we made was to put additional money in savings rather than paying extra on our 15-year 4.875% mortgage. Given the current interest we get on our savings, it would be a better deal to put the money on the mortgage, but I felt a real need to have additional cash available.

  12. Yikes – 293k debt load for the average american??? Man, I don’t feel so loaded down after reading that.

    The student loan numbers look pretty normal (even for the midwest). For us it was about 45k for my bachelors in engineering, 25k for my wifes’s bachelors and 30k for the wife’s MS LIS. I went to a private school, thus the cost was higher, but my wife attended state schools and it was still expensive. It’s crazy expensive, but if you don’t have a degree here, you’re stuck making $7 an hour doing general labour.

    Here in the midwest people are still loaded down, but the thing that helps a lot of us is the median home price (therefore the mortgage) is a lot lower than the east and west coasts.

    There are some people here in the midwest that are pretty self sufficient, living off the land, heck some are living off the grid. Not the majority of people, almost everyone I know still has a mortgage, car payments and student loans.

    Anyway, good job on knocking down those credit cards! I love the rush of sending in another payment and the anticipation of watching my balance update online. It sure beats the temporary rush of needless spending.

    On a personal note, we have managed to pay down our home loan from $33,900 to $22,000 since January of this year. Luckily we have been at this a couple years now and the ol’ debt snowball has a lot of momentum. Currently we are able to snowball about an extra $1000 a month since other debts are paid off, plus we snowflake whatever is left over at the end of the month. This recession has been harder though… no more overtime at work and the looming threat of unemployment. I guess I have to be thankful I still have a job.

  13. @FD:

    I wonder what socio-economic group they’re surveying, and what age demographic, and what mechanism they used to collect their data. The numbers seem plausible for a 29-year-old Yuppie just out of graduate school with a brand-new job, but not a 75-year-old retiree living on a pension. The set of Internet users might overlap a lot, but there are plenty of people with no Net access.

    The mortgage and HELOC numbers in the survey seem high to me. I would expect a renter to have neither HELOC nor mortgage, and a substantial amount of owner occupied real estate is paid off.

  14. Hi Frugal Dad,

    How I wish that the trend was because people were paying off debt…but other blogs have shown that most of that decrease is due to a huge level of defaults, not paydowns. 🙁

    Maye your bold sentence should be rephrased to “This means that, overall, Americans are defaulting on consumer debt at record levels.”


  15. @Erica: Good point. I’m sure a good bit of the debt reduction has been through defaults. After all, we hear all the time how bankruptcies, charge offs, etc. are at an all-time high.

    I guess the optimist in me hopes a large percentage of people are paying down debt, too. I’d like to think the lasting effect of this downturn will be more reluctance to accumulate so much personal debt. I guess time will tell.

  16. I was relatively shocked at the numbers when I first read them and I’ll take your word for it that it looks “average”. I’d hate to see above average although I’m sure they’re out there…

    I’ve been on a debt killin’ mission for a couple of years and I’m starting to see some momentum. Goal is to pay off everything including the mortgage in 5 years.

    Feel pretty good that I don’t have any debts attached to non-durable goods (ie. credit cards, student loans, etc). I do owe about 50% balances on 2 late model cars and a balance on a house.

  17. Average consumers had:

    $6,818 in credit card debt – Among those who carry a balance
    $193,036 in home mortgage loans – Among those who carry a mortgage
    $52,559 in home equity loans – Among those who have a Heloc
    $14,449 in auto loans -Among those who have a car loan
    $26,368 in student loans – Among those who have student loans

    These misleading statistics do not apply to each and every American. Those readers who added up the list to arrive at a “total” figure are missing the point at least twice. Even if a person had debt in all five categories, they would be a tiny fraction of the American population.
    Most of us read this site because we’re learning to be smarter about our finances. Using “statistics” such as these is a complete waste of time. I think your original point is good, but your supporting “evidence” from Credit Karma is not. Makes me wonder what CK is trying to sell me that I probably don’t need.

  18. @Diane: Any survey/statistic/poll represents a small sampling of the overall population. If you just look at the numbers individually, they don’t seem to be that far off from the anecdotal evidence I have seen over the years. I do agree, that if you assumed the average American carried each of these debt balances in all categories it may be a stretch.

  19. @FD and Diane:

    Those numbers kept getting to me, so I hit Google and found another on-line article about the credit card debt at least. It’s not the last word on the subject but it represents another interpretation of the statistics.

    This is by an author I consider reasonably good but not ultra-sophisticated. She’s more of a journalist than a guru but she generally digs deep when going after her facts.

    The news appears to be good. The samples turn out to not be a normal distribution but an almost Zipf distribution, with distribution very far to the left. It’s extremely low-modal (the most popular debt amount is zero) but the mean is skewed high by statistical outliers at the high end.

    I ought to translate that into English.

    Imagine indebtedness as a spectrum with those who owe nothing on the left and a number line stretching to the right. The majority of households (55%) either have no card or pay their credit card balances in full, and that count is indeed ticking higher. At the other end of the spectrum there are only a handful of debtors but they owe an awful lot. The reason the “average” debt among card holding households is so high is because it’s calculated as an arithmetic mean (total debt divided by total samples of people who have debt). There are a small percentage (maybe 5%) that owe five-figure balances or higher. Those extremely high numbers are big enough to completely overwhelm the masses of people who owe nothing.

    There weren’t any statistics available that track debt level relative to income. A five-figure credit card debt sounds scary, but if the person who holds it earns seven or eight figures per year it’s not the terrifying burden it would be for an average income earner.

    This might reflect a manageable state of affairs, and it could be that the frugality trend is indeed catching on. Maybe we’re a bunch of trend setters and not contrarians.

  20. It’s a good thing I wasn’t taking a drink of water when I read those numbers, particularly the HELOC number. Sheesh! To have that high of a first mortgage, AND a second mortgage AND CC debt sounds crazy to me. Of course, I was just reading a book last night, and the author was talking about how it is common practice for people to “Rob Peter to pay Paul”. I’ll bet that the above numbers reflect just that.

  21. Midwesterners are simply more badass then the rest of the country! And CoL is less, houses are better priced, food requires less transportation… Except for all the car plants folding, the Midwest is ‘recession proof’

  22. I’m glad to say that we only have debt in two of those categories: mortgage and cc. We have also not added to the cc in recent memory, we’re only paying it down. If I had all of that debt I would go out and get a job, or 2 or 3! It just seems like tooooo much for one family. No wonder so many families are in the position that they are in.

  23. We owe about $67k on our mortgage, which is our only debt.

    Most of the recession found us spending less and saving more. Recently we started paying an extra $600 a month on the mortgage since our savings is earning such meager interest.

  24. Ya.. that is good news. In another ten years US consumers will be out of debt and back to spending again. Until then…. the US recession will continue.

  25. We started aggressively paying down debt last June, after a friend/co-worker got laid off. That was before the big recession news hit, but once that happened, we had even more reason to continue. We have paid off $23,000 of debt since that time and covered a number of unforseen expenses without going into additional debt. Our final payment on the credit card will be made within a few days, and then we will not owe on anything except our house!

  26. Squeaky, you rock! Thanks for doing the homework and for the brilliant tanslation. With everything, it’s always a matter of perspective.
    I have enough mortgage debt to land way on the right side of the spectrum. Fortunately, even at current market value, with 50% equity. I live in an expensive area. I could not afford it if I had debt in any other category.

    Bill, that’s been a favorite quote since my first (and last) Statistics course in college!

  27. Debt is down not because people are paying it. It is because too many people lose their jobs and had exhausted their 9 months of umemployment benefits. Which leads to increase bankruptcy filings. The economy still sucks but those damm dumb-head writers, journalists, ecomonic experts, money experts, church leaders, etc… think it is getting better. If you are one of them please prepair yourself for the worst. Our national debt clock stands at 11,000,000,000,000….Please wakeup people. Please learn to speak Chinese because you and your children need a job there someday. I am a salaried employee. My company cut 10% off my annual salary. Work 3 weeks and off 1 week furlough indefinite until my employer says its over. Who knows when? I am sure Chapter 7 BK will be increased as debt decreases respectively.

  28. good gracious, I though I wasn’t doing so well with my debt, but these numbers make my personal situation look positively capital!
    As I live in the midwest, I suppose norms may dictate lower acceptable levels of personal debt, which goes hand in hand with the number of goods and services available being somewhat less, and lower priced!

  29. Again, I think we need to emphasize that this is a very large country so prices here in California, and other places like NYC, etc., are going to be eye-popping for others.
    Our mortgage is over $500K but the value of the house is $1M. (2bed/1 bath at that!)
    A job which might pay $30K in the middle of the country might pay $75K here. So really, percentages might be a better way to look at specific expenses.

  30. Paid off unsecured loan, now paying off Credit card. Will have that paid off in less than 20 months. Use credit card only in emergencies these days. When card is paid off, will take that payment and put it against car loan. No new car for me when its paid off. Will keep this gas guzzler, since I only drive about 5,000 miles a year. Being a retired widower, no need to keep up with the Jones family. Hell, no need to keep up with anyone. As long as there is a good library close by, don’t have to spend money on entertainment. A good book and a good imagination is better than any Hollywood movie out there today.

  31. @Banditjack – my sentiments EXACTLY – except no car loan…and I think this pickup and the forester will probably out-survive me…. at least that’s my plan 🙂 But visiting grandkids out of town, I go about 10,000 miles a year all told 🙂

  32. The recession this past year hasn’t really changed anything under our roof. We’d already had our wake up call 2yrs ago when my DH was laid off unexpectedly. Luckily I’d been tracking all our expenses on an Excel spreadsheet so we had a good snapshot of our current cashflow. Then we scrambled to assess the true state of the credit cards we’d been casually paying off. While he was in his 60day notification period and still officially employeed, we immediately went to the bank to increase the limit on our line of credit (just in case we needed it). We cut ALL non-necessities out of the budget, cut the food budget in half. No lessons for the kids that fall, no new clothes for anyone – we all had plenty. We had to arrange private life insurance since he’d be losing the coverage he’d had through work. Before losing his health care coverage he quickly got his dental work and eyeglasses up to date. Christmas shopping was almost completely done by cashing in Airmiles for gift cards, magazine subscriptions etc. In the end he found a new job withing 3 months and we carried on. The difference was we never went back to the way we used to do things. Until he was laid off we’d never really assessed how vulnerable we could be if one salary suddenly went away. We now have lazer like focus on being debt-free. We haven’t carried a CC or line of credit balance since then, and we’re pounding our mortgage with all the extra payments we can managed. I don’t want to live in fear that the next layoff could send us over the edge, so we now we live well below our means, and it really gives you peace of mind. As it happens, I will be laid off in the next 3-6 months when my company closes, but this time we’re in a far better position to weather the storm. If I haven’t found a new job before the layoff, we’ll simply stop all the extras (retirement contributions, extra mortgage payment, trips, entertainment) until I do find a new job.