Consumer debt keeps falling, but credit-card bills linger

Consumers are still tightening their purse strings, according to today's report from the Federal Reserve Bank of New York showing that for the seventh consecutive quarter households are borrowing less and paying off more debt. Why that's happening "can be a result of both tightening credit standards and voluntary changes in saving behavior", says Donghoon Lee, senior economist in the Research and Statistics Group at the New York Fed, and not so much due to defaults and bankruptcies, which fell from the previous quarter. 

"It's a positive sign any time consumers can decrease the burdensome weight of debt," says Tod Marks, Consumer Reports resident shoppping expert. "Especially in light on the momentous problems of unemployment, still hovering at around 10 percent, higher property taxes many face, and flat or declining home values. The fact is Americans just don't have as much to spend as they used to. Credit remains extremely tight. So this isn't a huge surprise."

The pace of the decline in debt has slowed recently, and the Fed's monthly report on consumer credit, released Friday, actually showed a 1.1% pickup in borrowing in September, the first increase in eight months. This report, unlike the NY Fed's quarterly one, cuts out mortgages and home loans, which can be volatile and subject to revision. The areas that increased were loans relating to autos, tuition, vacations and boats. But some of this is seasonal, such as the return to school.  

Credit-card spending contined to decline in September for the 25th consecutive month, which is good for household balance sheets. Credit-card debt seems to linger, and the Consumer Reports Holiday Shopping Poll released last week found that some 13.6 million Americans are are still paying off credit-card debt from the 2009 holidays. People who shopped with cards instead of cash spent about 10 percent more than the average in our poll - $896 vs. $811 in 2009.

— Chris Fichera