Millions of Americans have been working to reduce their debt loads since the end of the recession, and have largely been successful. That trend also continued into the first quarter of this year.
The total amount of household debt carried nationwide slipped $110 billion in the first three months of the year, largely due to major reductions in mortgages and credit card balances, according to the latest Household Debt and Credit Report issued quarterly by the Federal Reserve Bank of New York.
In all, Americans now owe $11.23 trillion, down 1 percent from the previous quarter and still well below the all-time record high of $12.68 trillion observed in the third quarter of 2008, indicating that many consumers nationwide are now trying harder to keep their obligations down and even cut into them more deeply.
Moreover, the rates of late payments on all loan types also fell across the country, and those 90 days or more behind on payments dropped to an overall average of 6 percent, from the previous 6.3 percent, the report said. That, too, was a substantial drop from the all-time peak of 8.7 percent observed in the first quarter three years ago.
“After a temporary deceleration in the previous quarter, the data suggest that household deleveraging has resumed its previous trajectory,” said Wilbert van der Klaauw, senior vice president and economist at the New York Fed. “We’ll look to see if this pace of debt reduction and delinquency improvements will persist in upcoming quarters.”
Only two types of debt saw increases in the first quarter, the report said. Student loan debt rose some $20 billion to a total of $986 billion, while auto lending jumped $11 billion to $794 billion. However, at the same time, the value of mortgage originations — that is, the funds given to people applying for home loans — rose for the sixth straight quarter to $577 billion. Nonetheless, balances on mortgages nationwide slipped some $10 billion.
Consumers trying to cut their debt obligations may want to first focus on reducing their credit card balances, which tend to carry far higher interest rates than other types of loans. They therefore can more quickly add to their balances if these debts are not addressed.