Consumers are cutting back debt in all but one area: student loans. That's because the Federal government is lending triple the amount it did in 2008, thanks to the Stimulus Package and the Health Care Reform Bill. In November, 2010, the government subsidized student loans were $315 billion, driving the non-revolving debt to near-record levels of $1.606 trillion. In contrast, credit card debt dropped 6.3%, continuing a 28-month downward trend. This is the longest decline since the Federal Reserve began keeping records in 1943. (Source: Federal Reserve, G.19 Release, January 7, 2011)
In addition to student loans, non-revolving debt includes loans for auto, furniture and consumer electronics, and now is $13,496 per household. It's been increasing since early 2009 thanks, in large part, to government support of education.
The falloff in credit card debt, on the other hand, is a result of the 15 million unemployed and tightened bank lending standards. The availability of credit for personal consumption drives 70% of the U.S. economy. For this reason, the decline in consumer credit is a drag on economic growth. Americans owe $796.5 billion ($6,693 per household) - less than they did in 2004.
Note: This estimate is based on 119 million households or 308.7 million / 2.59 persons per household. (Source: U.S. Census, 2010 Data; Average Household Size)
What It Means to You
Government support of education means more people will come out of this recession at higher skill levels. These graduates will have a better future - the unemployment rate for college graduates is only 5.1%. If you're thinking about going to college, take advantage of government programs now. The could be a victim of Congressional budget cutting in 2011.
As for credit card debt - let everyone else take out loans and spur economic growth. Continue to dump debt....and avoid becoming a statistic in the Federal Reserve's G-19 report next month.
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