While many reports have lauded American consumers for returning to fiscal stability after overspending in the years prior to the recession, a new report suggests the recent reductions in consumer debt have resulted from bank charge offs and not improvements in consumers’ money management.
Charge offs – which occur when a bank writes off a debt as uncollectable – have been on the decline for much of the last year. However, these accounting actions at major banks are responsible for 65 percent, or $695 billion, of the recent drop in overall consumer borrowing.
During 2010, consumers only paid off $375 billion worth of past-due debt. This means many consumers are still not paying their overdue bills, but rather banks are writing off foreclosed homes and canceling credit card accounts at a greater rate, Time Magazine reports.
In addition, many experts expect consumers to have a more difficult time paying down their debt because of the rise in gas prices and overall consumer spending, the news source says.
In 2009, overall consumer debt fell by $550 billion, leading many financial experts to credit consumers for focusing on improving their finances. However, Americans still owe more than $6 trillion more today than they did in 2001, according to the report.