The Positive Effect of The Increase in Consumers Debt Since 2008

CreditCards.com has published the following credit card statistics: About 51% of the population of U.S. owns at least two credit cards; the credit bureau has a record of 13 credit obligations on the average per consumer and with the oldest one recorded for 14 years. These statistics simply prove that the payments on consumers’ credit debt greatly affect their monthly spending.

In a sense the economic recession from 2008 up to the fourth quarter of 2011 has taught lessons to consumers to reduce their personal debts through wise spending during this period.

According to the Wall Street Journal, the Federal Reserve said that there was an increase by 0.25 % in household debt which includes credit cards, mortgages, vehicle loans and student loans in quarter four of 2011. This increase was the first one recorded since quarter two of 2008 prior to the collapse of Lehman Brothers which resulted to financial problems and recession. Economist attributes this small increase to the reduction in debt and consumers’ effort to save.

Another positive result is the increase by $1.2 trillion in the net worth of U.S. households. From October to December the total net worth is $ 58.5 trillion, the first increase that took place for two quarters.  The rise was the result of the 12% improvement in the Dow Jones Industrial Average. The disposable income of Americans improved allowing them to pay their debts. In terms of disposable income, at the close of 2010, debt fell from 118 % to 113 %. Though this is small, what is important is the positive shift.

The consumers’ confidence is improving because of all the positive results that are happening. But in order to sustain the improvement, they should continue to be wise in their spending to further cut debts.  Fed’s graph shows that since 2010, there has been a sharp decrease in the GDP percentage for financial businesses and households. It was flat for non-financial businesses and increased at the Federal government level.

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