When is $11.4 Trillion in Debt an Improvement?

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The Federal Reserve Bank of New York released a report on Monday that shows America is chipping away at its collective debt — but slowly. According to the Quarterly Report on Household Debt and Credit, overall consumer debt was down by $50 billion at the end of June. If that seems like a lot, it’s not; in fact, it’s a measly 0.4 percent lower than our debt at the end of March, one quarter earlier. We still owe a grand total of $11.4 trillion, a number which includes everything from mortgages to credit cards along with all other types of revolving and non-revolving debt.

While we’re not exactly giving the country a gold star for being so deeply indebted, the good news is that we’re chipping away at the highs those debts reached before the financial crisis. Mortgages, home equity loans and other debts have all decreased, in aggregate, since peaks in 2008. Economists debate how much of this debt has been dismissed via bankruptcies, foreclosures or charge-offs; however, it’s clear that we are whittling away at this big mountain of debt.

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Credit limits grew by $60 billion last quarter. Again, this isn’t a huge increase, just over 2 percent, but it’s a good sign that lenders are becoming more active, especially when coupled with the fact that the number of credit inquiries — an indicator of demand for credit — has also increased. However, lenders are much more selective than they were a few years ago, which leads to a frustrating imbalance for many Americans: Those with good credit are awash in solicitations for credit cards, while people whose creditworthiness was damaged due to a foreclosure or job loss may still have difficulty borrowing or may need to pay higher rates to do so.

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The availability of credit is a double-edged sword, though; while an indicator of economic health, it also can tempt people into spending beyond their means and bring us right back where we started, awash in debt. So far, this doesn’t seem to be happening; the number of people delinquent on debts or in foreclosure declined, although both numbers are high by historic standards.