The Federal Reserve recently revealed a new study proving that while Americans may have diminished wealth and worth, they are not living beyond their means by racking up their credit card debt.
According to the Survey of Consumer Finances, the percentage of New Jersey families using their credit cards fell between 2007 and 2010 in addition to lowering their median balances. The average American family income dropped 7.7 percent from 2007 to 2010 and the median family net worth fell by more than a third during the same time period.
It would stand to reason that with less income, we’d use out credit cards to maintain our standard of living or just for paying bills until we find another job. But not so fast.
In actuality, the reason we saw a dramatic drop in the percentage of families carrying credit card debt and the deduction in their balances is because people filed for bankruptcy to get rid of their debts.
A chief economist said when we lost our jobs and paychecks in the recession we headed to bankruptcy court to wipe out those debts, causing lenders to become much tighter with their lending practices.
We wanted to clear our debt and start over while living within our new income levels and keeping both hands on the reins. Just as creditors are a bit more leery about lending money to consumers, consumers are hesitant to take on more debt as well.
Now that our credit card debt is reduced overall, we will all be in better shape in the coming years as we continue to move forward and out of the current economic climate.
Source: npr.org, “Credit Card Debt Cut: The Reason May Surprise You,” Marilyn Geewax, June 12, 2012