Credit card debt plummeted 5.2% in July as consumers paid down credit card debt, according to the Federal Reserve's report. However, loans for auto, furniture and consumer electronics jumped up 11.2%, as families took advantage of record-low interest rates. Combined, debt was up 5.2%, which is good for the economy. That's because personal consumption drives 70% of the economy. (Source: Federal Reserve, G.19 Release, September 8, 2011)Autos became more available, now that parts from Japan are back in supply. The earthquake/tsunami/nuclear meltdown in March disrupted the supply chain, causing a drop-off in auto sales for months. This caused a slow-down in economic growth that many are mistakenly interpreting as a signal for a double-dip recession.
This shift from high-interest credit card debt to low-interest loans is a healthy trend. Families have been cutting back on credit card use since its peak of $972.2 billion in September 2008. Even though they've paid off (or defaulted on) a whopping $180 billion in credit card debt, each household still owes $6,664 to Visa, Mastercard and the like. (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)
Car loans, and other kinds of non-revolving debt, is the highest in history -- nearly $1.7 trillion. That means each household, on average, has more than $14,000 in non-revolving debt. Some of this increase from government-subsidized education loans -- a great investment in this country's competitiveness.
What It Means to You
These are healthy shifts for the economy. Education loans are, really, investment spending in your own future. Why? Research shows that the unemployment rate for those with a degree is only 4.2%. If there is any way you can go to college, take advantage of government programs now. They could soon be a victim of Congressional budget cutting.