Credit Crunch Spreads from Wall Street to Main Street

In August, consumers decreased their credit card debt .8%, the first decline since 2005. Consumers owe $969 billion, which is $3,177 of credit card debt per person, or $8,260 per household. (Source: Federal Reserve, G.19 Release, October 7, 2008)

The Federal Reserve's G-19 Consumer Credit report also stated that non-revolving debt, like loans for auto, furniture and consumer electronics, fell 5.4%, the first decline since 2005. Non-revolving debt is still $1.608 trillion, or $5,272 per person or $13,708 per household. Note: This estimate is based on 305 million people in the U.S., an average of 2.6 persons per household, and 117 million households. (Source: U.S. Census, Population Clock; Average Household Size)

The decline in credit is a the first sign that the Banking Credit Crisis is now affecting consumers, as well. In addition, a tightening job market and higher unemployment means fewer families can afford credit card and auto purchases. This is a reversal from the last two years, when the declining housing market caused many families to switch from home equity loans to credit cards to finance purchases. The availability of credit for personal consumption drives 70% of the U.S. economy. Declining credit purchases will probably lower the Q3 GDP growth rate.

What It Means to You

A soft economy caused by declining credit card debt is a good time to reduce your own financial vulnerability. Consult with your financial planner and develop ways to reduce your own credit card debt....and avoid becoming a statistic in the Federal Reserve’s G-19 report next month.

Related Articles

• Chicago Federal Reserve web site How to Budget
• About.com Guide to Credit, LaToya Irby Making a Plan to Reduce Credit Card Debt
• About.com Guide to Beginners Investing, Joshua Kennon More Resources for Reducing Credit Card Debt