Editorial Policy

Are Consumers Finally Digging Themselves Out of Debt?

Marcia Frellick

July 10, 2012

Consumers can give themselves a pat on the back for learning to manage their credit card payments, according to a new report from the American Bankers Association.

ABA’s Consumer Delinquency Bulletin for the first quarter of 2012 shows that the number of delinquent bank card accounts — those with payments at least 30 days overdue — fell to 3.08 percent from 3.17 percent the previous quarter, the lowest level since 2001, and well below the 15-year average of 3.93 percent.

Beyond card debt, consumers are also getting better at repaying personal loans and direct auto loans. The report showed overall delinquencies fell to 2.35 percent of all accounts, the lowest since the second quarter of 2007 (just before the recession hit). For comparison, at the height of the recession, about 3.35 percent of consumer loan payments were overdue.

A winter job boom helped consumers keep on track with their payments, said ABA Chief Economist James Chessen in a statement about the results. Federal Reserve numbers show the economy added 252,000 jobs a month between December and February. That, combined with improvements in consumers’ spending behavior and banks’ more conservative approach to lending made the difference, Chessen said.

ABA says consumers are not only managing their debts better, they’re saving more.

“That’s important because it gives them a little more flexibility to manage any sort of financial shock they may have,” Chessen said in a statement.

This news is especially encouraging, according to Chessen, considering delinquencies declined in 10 of the 11 categories ABA tracked. In the previous quarter, delinquencies fell in all 11 categories.

“This is another strong quarter of improving delinquencies. Consumers have done a remarkable job getting their finances under control,” Chessen said.

The fact that consumers are staying on track with debt payments is “all the more remarkable,” according to Chessen, because gas prices rose 66 cents per gallon in the first quarter of 2012. Yet consumers are not allowing that extra expense to derail their debt repayment efforts.

The only category in which delinquencies rose was in home equity lines of credit. Chessen said that will likely continue for many quarters as the recession continues to plague the housing sector.

ABA’s good news may be short-lived in light of declines in numbers of jobs created in the past few months. The Labor Department’s latest jobs report released July 6 found only 80,000 jobs were created in June, the third straight month of decline.  The unemployment rate remained stuck at 8.2 percent.