| November 29, 2011

Consumer debt dropped in third quarter

In keeping with recent trends, the amount of debt carried by consumers on all their various household accounts fell once again in the third quarter of the year, though it did so only slightly.

The nationwide total of all consumer debt dropped $60 billion in the third quarter of the year, down 0.6 percent to a new total of $11.66 trillion, according to the latest Quarterly Report on Household Debt and Credit issued by the New York Federal Reserve. During that period, the amount owed on mortgages declined most significantly, dropping $114 billion, or 1.3 percent. Meanwhile, non-real estate debt rose roughly 1.3 percent to a new total of $2.62 trillion.

“The decline in outstanding consumer debt reveals that households continue to try and deleverage in the wake of a challenging economic environment and large declines in home values,” said Andrew Haughwout, vice president in the research and statistics group at the New York Fed. “However, our findings also provide evidence that consumer credit demand continues to increase, a positive sign for consumer sentiment.”

Meanwhile, the number of open credit card accounts nationwide dropped by roughly 6 million to a total of 383 million between July and September, the report said. That level was about 23 percent below the all-time peak observed during the second quarter of 2008, and the amount owed on them was close to 20 percent beneath the high seen in 2008’s fourth quarter. In addition, the total amount consumers could borrow on all credit card accounts dropped by roughly $25 billion. However, the amount of inquiries for new credit cards in a six-month period rose for the second quarter in a row, indicating that consumers are now increasing demand for new accounts.

However, nationwide delinquency rates rose slightly, jumping to 10 percent of all accounts at the end of the quarter from the previous period’s 9.8 percent, the report said. About $1.2 trillion of consumer debt is now delinquent, with $834 billion of that 90 days or more behind on payments.

In recent months, rates of delinquency and default have been rising somewhat, but many experts attribute that change to the previous low levels of late payments to be largely unsustainable under normal economic conditions, rather than consumers returning to bad habits en masse. However, consumers who are struggling in making on-time payments into their debts may want to consider the benefits of credit counseling services.

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