Consumer Debt Continues Downward Fall - Total Bankruptcy
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Consumer Debt Continues Downward Fall

In welcome news for a struggling economy, the Federal Reserve recently announced that consumer debt is continuing its steady descent from previously lofty heights.

According to a summary of the Federal Reserve’s research provided by the Los Angeles Times, total consumer debt dropped by $9.1 billion this May to $2.41 trillion. One small caveat is that this healthy figure does not include home mortgages.

It is truly a strange economic world when $2.41 trillion is a relatively small amount of debt, but this figure does represent a marked improvement. In fact, the May descent in debt is the 15th such drop in the last 17 months.

In addition, the debt decline in May far exceeded the estimates provided by experts, some of whom expected only a drop of roughly $2 billion.

Further, since the end of 2008, the total debt load of American consumers has fallen by 5.7 percent, which amounts to a total drop of about $146 billion.

Why the Continued Reduction in Debt

According to The Atlantic, there are likely several reasons for the decline in consumer debt.

First, due to the weakened state of the economy, consumers are now less likely to take on new debt these days. So, instead of making more purchases, many individuals are now choosing to use their extra cash to pay off old debt.

Of course, consumers are not the only ones being cautious. Banks, too, have become more vigilant about their lending practices and are now less likely to extend credit to customers. According to reports, commercial banks and financial companies have reduced the total amount of credit they extend to customers by roughly $10 billion.

Thus, the combination of consumer saving and banker caution has slowed the accumulation of debt.

Some critics argue that these elements continue to thwart economic growth. Without consumers spending more money at business, and banks extending lines of credit to struggling entrepreneurs, it is difficult to stimulate the struggling economy.

However, if and when the economy does recover, others argue that consumers will show better financial health as a result of their newfound austerity.

The Exception: While most credit holders saw their overall debt fall in May, there was one exception.

The U.S. government, perhaps unsurprisingly, continued to add more debt, tacking on another $6 billion in May alone. This is likely a result of the government’s continued efforts to stimulate a weak economy.

If you are among the large number of people who still see their debt rising rather than falling, consider talking to a bankruptcy attorney in your area.

For those who are brave enough to sift through reams of raw data, here are the Fed's data on consumer debt.

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