Finance Blog
“Disciplined Consumers” Paying Off Debt
Americans across the country are paying off debt and remaining cautious about taking on new debt. Is this due to a greater economic recovery, or are consumers playing a larger part in debt levels? And how might this affect credit scores?
Overall consumer debt fell by 2.28 percent in the third quarter of the year versus the same period a year ago, marking a $256 billion drop over the last year. U.S. consumers owe a little less than $11 trillion in total debt, with mortgage debt accounting for slightly more than three-quarters of that amount.
The drop in debt reflects a rise in what Trey Loughran, president of the Personal Solutions unit at Equifax, calls the “disciplined consumer”—a borrower who is more disciplined in taking on new debt and is careful about how he or she manages pre-existing credit.
“Generally speaking, consumers are showing discipline and caution about debt coming out of the recession,” Loughran said. “Even though people are taking on debt to get new automobiles, we also know they are driving their cars longer. We expect the trend of the ‘disciplined consumer’ to continue for some time.”
Of the overall debt, non-mortgage consumer debt increased 0.7 percent, due largely to continual increases in auto financing. Auto debt rose 7.1 percent nationally over last year and is one of the few areas where spending has recently increased.
On the other hand, mortgage debt dropped 3.4 percent. While the decrease in mortgage debt may be due to Americans consistently paying off their mortgages, mortgage debt also gets written off after foreclosures, dropping total consumer debt.
Differences in consumer debt seen across the United States
While debt decreased overall nationwide, consumer debt increased in three cities over last year. In the Houston area, debt climbed 1.37 percent; in Pittsburgh, it increased 1.05 percent; and in the Dallas-Fort Worth area, debt grew 0.08 percent.
The recession has affected portions of the country differently, with unemployment figures varying city by city and foreclosure rates changing dramatically state to state. Residents of states hit particularly hard by the recession—California, Florida, Nevada, and Arizona—have been more cautious about taking on new debt and have been more regularly paying off their debt.
The largest declines in consumer debt were in the Las Vegas, Miami-Fort Lauderdale, Sacramento-Yolo, and Phoenix-Mesa markets—all areas that had some of the highest foreclosure rates amid the recession.
After the holidays, it’s possible that the last quarter of the year will see higher consumer debt than previous quarters—typically consumers rack up some temporary debt during the last part of the year. Whether the overall trend will continue to decrease year over year remains to be seen.
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Respectfully requesting additional 90 days
I paid-off my mortgage my principal residence in 2004. It was formally discharged in 2010, in the County Register of Deeds office. The discharge is in the ‘Public Record.’
The last holder of the mortgage was NOT a member of Equifax Transunion, Experian, et. al.
I have sent copies of the discharge document to Equifax, only to
receive form letters stating, ‘mortgage not reporting.’
Equifax, Transunion & Experian routinely search the public record for defaults, foreclosures, bankruptcies, deaths, divorces, judgments, tax liens & criminal convictions & enter them into credit files.
Discharged mortgages are not routinely entered by the credit reporting companies. Why is this the case ?
And how does one have their paid-off, discharged mortgage entered into their credit file ?
Equifax is no doubt aware a fair % of homeowners own their homes free & clear – (ie. w/ ‘clear title’)
This unused (readily ‘monetized’) property value goes UN-recognized by the Credit reporting companies. (brokerage/ investment ‘margin’ lines of credit also go un-recognized by credit reporting company’s algorithms…)
Credit scores reflect little more than credit card capacity & credit available.
Does Equifax have long terms plans to include the unused property value of real estate in it credit scoring algorithm ?
Hi John. Credit scores are indications of your risk as a borrower, so credit reports and credit scores are reflective of recent and current payment habits and debt obligations. The team at the Equifax Finance Blog is independent from the scoring process by Equifax, but we’re happy to hear from you. Thanks for posting.
I will explain further:
The sole criteria Equifax, Transunion & Experian employ in determining credit capacity is unused borrowing capacity of credit cards.
Approximately 1/3 of American homeowners own their primary residences w/ ‘clear title’ – they own their homesteads ‘free & clear.’ This ‘home equity’ appears to go unrecognized in the calculation of credit scores.
As easily as consumers reduce (& increase) their credit capacity on their credit cards, homeowners can – & do – reduce (&increase) the equity in their homes. Approximately 1/3 of American homeowners have significant ‘unused borrowing capacity’ available to them. Until home equity is included in calculating credits cores, Credit scores will inaccurately gauges the true credit capacity/ borrowing responsibility of 1/3 of American homeowners.
The implication: credit scores inaccurately under grade the credit capacity & risk of 1/3 of American homeowners (ie. those homeowners w/ clear titles to their ‘homesteads’). Their homes may not be readily salable, but the equity in their homes can be readily ‘monetized’ via a 1st mortgage.
Please refer it to a department where it will receive a direct response.
Thank you
Late payments are treated as mortal sins by the Credit Reporting agencies. Consumers should avoid them like the plague.
How do CRAs treat early payments by consumers ?