Image may be NSFW.
Clik here to view.
Numerous studies and statistics have shown that consumers’ attitudes toward debt changed significantly since the Great Recession, and now new data shows just how substantial those shifts have been when it comes to cutting balances.
Since the end of the financial crisis in 2009, households across the country have been able to reduce their outstanding debts by some $1.3 trillion, according to The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit from the Federal Reserve Bank of New York. This was due in part to the massive rash of defaults observed in the wake of that downturn, but also because consumers simply got smarter about dealing with these issues.
[Free Resource: Check your credit score and report card for free before applying for a credit card]
Image may be NSFW.
Clik here to view.
There were likely three reasons for these massive declines in credit use in general, the report said. First, consumers may simply be less interested in obtaining credit now than they were before, and the same is true of their desire to use credit they have. However, in many cases, lenders may likewise be more reluctant to extend this type of financing to borrowers as a result of the increased risk of default. Written-off balances are the third factor that could significantly reduce nationwide debt.
“Rising unemployment affects consumer debt decisions in two potentially offsetting ways,” the authors of the report wrote. “First, households may choose to build their precautionary savings (or increase their available credit) to insure their cash flows against a job loss. This action would tend to reduce debt balances outstanding. Second, households that do experience a job loss may use their credit accounts to smooth their consumption, leading to more borrowing.”
Moreover, instances of delinquency and default have been more or less declining from the all-time high observed in the fourth quarter of 2009, when it stood at 11.9 percent of all outstanding balances, the report said. This was particularly evident among mortgage delinquency, which totaled just $140 billion at the end of the third quarter last year.
[Credit Cards: Research and compare credit cards at Credit.com]
It has only been in recent months that consumers have really begun to return to borrowing efforts in earnest, as there has been some expansion of outstanding debt in that time. However, it should be noted that even with this return to borrowing for many Americans, balances still linger well below the levels seen prior to the downturn.
Image: Zoonar
