Smart Borrower Blog

Credit Card Debt, Consumer Borrowing Drop in July

Sep 12th, 2012 @ 3:31 PM by Amber Nelson

American consumers borrowed less money in July, with steep drop-offs in credit card debt off-set by small increases car and student loan debt, according to recent data from the Federal Reserve.

In July, consumer debt fell to a seasonally adjusted $2.705 trillion, down $3.3 billion from June’s upwardly revised $2.708 trillion. That marks the first decrease in monthly consumer borrowing since August 2011.

Americans borrowed only $850.7 billion on credit cards in July, down from $865 billion in June, and down 17 percent from the all-time high of $1.03 trillion back in 2008. Since the financial crisis, borrowers have used their cards much less, some because they defaulted and no longer have cards, and others because they have cut back and been more cautious.

“Households are definitely still in deleveraging mode, they’re hesitant to take on new debt,” said Ryan Wang, economist at HSBC Securities USA Inc. in a BusinessWeek article. “I think credit card debt is going to be flat to up slightly, and mortgage balances are still falling.”

Yet while consumers have scaled back their credit card debt, student debt has exploded. Americans went back to school in droves to gain new and better skills after the unemployment rate plummeted several years ago and hundreds of thousands lost their jobs. However, student loans grew at a much slower rate in July when federal student loans increased by just $1.1 billion, compared with recent monthly gains in the range of $5 billion. July’s gain is the smallest since December 2010, over a year-and-a-half ago.

Consumers are also putting more into their savings these days, saving 4 percent of their after-tax income during the second quarter. At the beginning of the recessions, Americans were saving only 2.5 percent in 2008 when the recession started. And as people get their financial houses in order,with household debt including mortgages decreasing for the past 16 consecutive quarters, we can hope for a more financially stable U.S. economy in the coming years.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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