The $21 Billion Question: Consumer Debt In Freefall?

Other reasons include onerous credit card rates and restrictions. Credit card companies have been busy cutting credit limits in 2009. According to FICO, credit card companies cut limits for 58 million card holders in a 12-month period between April, 2008 and April, 2009. Plus, according to the Pew Safe Credit Cards Project, the average U.S. consumer credit card interest rate rose from 9.99% in December, 2008, to 11.99% in July, 2009. Pew also says that card company profits on credit card debt rose 46% over the same time period.

Debt is also down because over six million Americans have lost their jobs since 2006. With that many consumers on the sidelines, hunkering down financially until they find new jobs, demand for debt will be softer than usual.

Overall, the massive decline in U.S. consumer debt shows no sign of declining. Since banks can borrow money from Uncle Sam on the cheap – with interest rates of 0.5% or 1% fairly common on public/private loan deals – creditors are in no rush to lighten borrowing standards. Bottom line: banks just don’t need the money.

On the other side of the ledger, Americans seem to be sincere about mending their free-spending ways. Until consumers get their debt loads down to manageable levels, and until the economy promises more jobs and better wages, expect this miserly mindset to maintain its hold over edgy consumers.

The end result? On the downside, less spending, more debt reduction, and less of a boost to U.S, businesses, and the economy in general. On the upside, however, lower debt means more and more Americans are stabilizing their financial futures.