Outstanding Consumer Credit Declines

One of the telltale signs that people are changing the way they do things in response to the recession is the latest report on outstanding consumer credit. For the first time, credit card debt has declined year-over-year. Overall outstanding consumer credit (which doesn’t include such loans as mortgages) has fallen by $11.1 billion. People are paying off debt — and avoiding racking up more. MarketWatch explains the declines in outstanding consumer credit:

The declines in recent months reflect not only reduced willingness of consumers to borrow, but reduced willingness of lenders to lend. Consumers have been increasing their savings rate, while banks continue to tightening lending requirements for most kinds of borrowers.

It is worth noting that outstanding consumer credit also declines when lenders write off loans. So some of the decline could be coming from that direction, as well as people actually paying down their debt.

In any case, this is good news for many individuals — and maybe even the long-term economy. Consumer confidence and retail spending appear to be on the rise, but credit card use appears to be down. This means that people are starting to spend money again, but that they are doing it without resorting to debt.

Our economy has been too used to gaining support from debt fueled spending binges, this may indicate that consumers could be shifting their habits. We may see a move toward an economy that is supported more by spending based on people using money they already have. It would mean slower economic growth, but it would also lead to greater economic stability.

What do you think? Are people shifting away from their credit spending?

image source: Daylife