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Americans’ debt shrinks – 1st time ever

According to a CNN article, America’s total consumer debt has fallen for the first time ever. That’s both good and bad in that it fell for two reasons:

1. People are spending less (good)

2. Credit is harder to come by, so people are forced to spend less (bad, if you need that thing you would have otherwise bought)

According to the article, total debt fell $30 billion, which is still a drop in the bucket of our total $13.91 trillion national debt. But at least some of us are on the right track.

Personally, we’ve contributed to the debt payoff as we cut $17,000 off our debt this year, and continued to keep credit card debt off the books (at least month-to-month). We still use our credit cards for almost all purchases, but we pay them off each month.

Americans’ Net Worth Dropping like Rocks

Consumers watched their net worth decline for the fourth quarter in a row as it dropped by $2.8 trillion, or 4.7%, to $56.5 trillion, dragged down by precipitous declines in home values and the stock market. It was the largest decline in the 57-year history of the report.

Wow. The biggest drop in 57 years. I guess if the report ran from 1929, then it might be the second biggest drop…or would it? Although I would think Americans have more assets today, I’d be interested to see a percentage comparison of net worth losses between now and the Great Depression years. But then again, the end is still yet to come.

“Consumers are going through a major change in their spending and savings habits,” said Lyle Gramley, a former Fed Governor. “Throughout the housing bubble, consumers had a savings rate of zero, relying on the rising price of their homes. Now they’re saving money for the future instead of spending it.”

I can tell you that we’re definitely throwing more into our savings rather than spending on toys and other stuff. We still have a good bit of disposable income each month, but that’s all the more reason to save up now when you can, before times might get tough.

How are you faring this year? Have you been saving more, spending more, finding yourself in the midst of the credit crunch?

About the author

Clever Dude


  • My guess is that the net loss in 2008 is a lot more than it was in 1929. For one, the population is a lot bigger. For another, people have more to lose, since the average person is wealthier and the very wealthy are much, much wealthier.

    I’m doing everything pretty much the same. I have no debt and don’t plan to acquire any. My investments, like everyone else’s, have taken a beating, but I haven’t stopped adding to them. I guess I’m being a little more particular in how I spend my food money, since prices have increased. But maybe they’ll go back down a bit soon.

  • I wouldn’t be all excited about this report. It seems to me the reduction is largely due to credit defaults and subsequent write offs. of course consumer debt has decreased with all the foreclosures going on. couple that with it being very difficult to get new debt, i’m surprised it didn’t decrease more. again, generic numbers are meaningless.

    as far as net worth? well, for us it is meaningless because we don’t need to access the money we are saving. The paper value of investments has decreased, but there aren’t any realized losses for us yet. we are continuing to dump most of what we earn into investments though, and we’ve also been increasing spending (well, my wife has been) on crap (i’m at odds with the increased spending the past couple of months in lieu of saving more, although she just found out she will get another pay raise next week). we are in a good financial situation with secure jobs, so in real life terms (since we don’t have any realized losses) the economy isn’t affecting us at all and hopefully won’t. We are very fortunate in light of other people, but it wasn’t all by chance. I worked hard to pay off debt several years ago, and we have actively managed to live far below our means and to save. I see our good position now as a positive return on investing in ourselves.

  • huh…that’s pretty interesting either way. i’ve cut out a helluva lot this year, but mainly since blogging and learning from around town. i wonder where i’d be if i was stuck in my old ways?

  • >Wow. The biggest drop in 57 years.

    I imagine that’s on a $ basis and not a % one. It will always be reported in the worst possible way, since bad news sells better.

  • @J. Money: you and me both. I cringe at the thought of being in debt and job insecurity in this environment. congrats on cutting down.

    @jack: if it is college loan debt and you are going to recuperate in a good career field, then don’t worry about it. if your discretionary personal debt increased, you should be looking for ways to eliminate or reduce now before you get a job. depending on when you graduate, the job market isn’t going to be rosy for several career tracks, so don’t wish away the debt on future prospects of employment.

  • We hunkered down, cut spending to the bone and paid off $16K in car loans and $5K in HELOC debt this year. The only debt left is our mortgage, which sadly is not going away for another 14 years.

    All amounts previously devoted to debt service as well as our normal monthly savings are squirreled away in a high yield savings account to help us ride out the storm.

    Part of me wants to resume a limited amount of consumption since such drastic cuts by many do the overall economy no good, but at this point I have to worry about my family’s well-being.

  • We started adding on a garage and doing some other remodeling. Since I’ve been doing a lot of the work it’s been slow going. This year the side income from my website allowed us to pretty much pay down what he had borrowed even as I continued to spend on the remodel.

    I put off the last big expense of having the driveway poured. The local office for my job was closed in August and a few of us were working from home. I was nervous about it. A couple weeks ago I got the call that I no longer had a job. We’ve cut what we’re spending but our debt is also going up.

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