When we launched in 2009, PerkStreet’s goal was to help Americans break the cycle of debt and start earning the kind of rewards they were used to only getting on credit by spending on debit — by spending responsibly with no risk of debt. Today, our goal remains unchanged. But a lot has happened in that time. Household debt payments recently reached a 30-year low. All together, we’re spending less money paying off debt than we have since Ronald Reagan was President.
Household debt has long been something we “maintained” as a nation. We bought things we couldn’t afford, and we payed them off slowly (or didn’t). Regardless, this was part of our culture. Perhaps this has changed. Then again, perhaps it hasn’t.
Household Debt Down…
According to the Federal Reserve, U.S. households spent just 10.6 percent of their after-tax income on debt payments in the third quarter of 2012, the lowest level since 1983. Add on payments not classified as debt, like rent and car leases, and the figure comes to 15.7 percent, also a roughly 30-year low. In the years since the recession, we have been better with our money as a nation.
Of course, there are other economic factors at play here, too. We can’t chalk it all up to our behaving better.
For example, loans have been tougher to get. Low interest rates are keeping banks from making as much from them, making lenders less interested in taking risky bets. The same low interest rates have made it easy to eliminate debt by refinancing our mortgages.
Foreclosures and bankruptcies have contributed to a decrease in household debt, as well. The folks who were on the verge of ruin before the recession only to be thrust into it by the financial collapse certainly aren’t counting our decreased spending on household debt as a sign of success.
Still, experts are pointing to our “de-leveraging,” as they call it — our household debt elimination — as a sign that our economy could really rebound in the next year. After all, if we’re not spending as much money paying off debt, we’ll probably spend it elsewhere, bolstering the economy as good consumers do. Consumer spending makes up between 65% and 70% of the U.S. economy.
Despite the other factors, it’s easy to look at our newfound debt aversion and tell a tale of Americans literally saving and then spending their way out of a recession.
…But Will We Get Back into Debt?
Unfortunately, knowing our penchant for spending money we have, the experts have also viewed an increased willingness to take on new debt as a sign of economic fortitude. We spend money we don’t have when we are confident we’ll be able to pay debt off. (Of course, we’re often wrong, which is what’s made household debt such a problem in this country.)
Even though it seems clear that we’ve figured out how to get ourselves out of debt, we also haven’t forgotten how to get into it.
Last year also marked a return to debt in many ways, as household debt climbed for the first time in years. Americans once again started taking on more debt than they were paying off. Sure, both are traditional signs that our economy is getting stronger, but perhaps we’re not out of the woods just yet.
What do you think? Will we continue paying off our debt, remembering the tough times we were tackling when the recession hit? Or will we learn our lesson? Share your thoughts below.