I started paying off debt about 5 years ago. No major vacations, no new cars, no charging on credit cards.
Recently I lost my job. We will be able to make it because we have no debt.

My wife has a decent job and I was able to get on her insurance. This will allow me plenty of time to find a new job.
Botom line, if you can't pay cash don't buy it.

Great idea! If that became the prevalent attitude it would eliminate a lot of the ups and downs of the economy.

Looks like people are still paying off their credit cards.

>>> U.S. consumers cut debt by record $21.6 billion in July <<<

I see the contraction of consumer credit (debt) as a double edged sword.

Philosophically it's a good thing. Bankers make money by creating it out of thin air and charging interest on people who do actually work for a living. Less profit for the money changers, IMO, is never a bad thing.

Realistically, in a consumer spending driven economy like ours, its a very bad thing. Most of the demand for consumer goods over the last 8 years or so was credit (debt) driven.

People stop borrowing to fund consumption, demand for discretionary consumer products (like my company makes parts for) goes way down.

Less spending, less sales and production, less jobs. Less jobs, less spending, less sales. See the pattern developing?

When I hear the executives at my company saying "things are going to turn around by x" I shake my head. I was told last fall that by the 3Q this year that things 'would be getting better' by now.

Yesterday some consultants were in our facility and met with all the exectutive staff. They told us that demand for our products was going up again, but not until NEXT year.

Uh huh.

When we went around the table they asked everyone what keeps you up at night. I said "micro -- losing my job. Macro--contracting consumer credit means less demand for consumer products".

I don't think anyone in the room understood what I was talking about.

That is part of the problem.

Contraction in a controlled and steady fashion in consumer credit might be a good thing if it was occurring outside of the historic recession we are currently enjoying. Instead of OF's obviously rosy take on the matter, this one makes FAR MORE SENSE. Consumer credit contraction of this magnitude in this environment (understanding how much credit we were using just recently) spells nothing but doom for any consumer based recovery and it is definitely very big trouble for the banks.

Karl's take on this is decidedly different and I believe the correct one when you understand it in CONTEXT.

Link provided for the objective thinkers in the crowd:

Denninger's take

Bingo Roy! I believe it's a hard concept for a lot of folks to grasp. Especially when they are searching desperately for some shred of good news. I also do not think many people have or had a good grasp of what makes the US economy hum. Its the consumer, they are tapped out, and contrary to the group think green shoots nonsense he is now being either shut out of the ability to use or get credit, or defaulting on it in record numbers. This is not a positive trend for a consumer based credit driven economy. No Sir.

Spinning it some other way is a desperate, feeble attempt and shows a complete lack of understanding for how the US economy works.

We can still see a recovery w/o spending driven by credit. It just won't be the hyped up economic growth on steroids we saw during the recent credit orgy. And even if we did see another credit orgy, I doubt it would be a good thing because it'd place us in a similar situation to what we've just seen. Growth driven by excessive credit will eventually come back down to Earth, and when it does, the recession will be a lot worse than if we had a more tepid but less volatile recovery w/o excessive credit.

Yessiree, folks are still paying off their credit cards.

>>> Ze link <<<

-- Credit card debt down $9.91 billion, or 13.1%. The 11th straight monthly decline
-- Non-revolving credit (auto loans, personal loans, student loans, etc.) down $2.10 billion or 1.6%

Deflation is unimaginable to most people. We have been living through a period of intentional government-induced inflation since the early 1970's (when not so coincidentally we peaked). it is hard for period to grasp contraction and all its implications. But that is what must ultimately happen when the cheap stuff disappears.

Yep, those credit card balances are still going down, down, down.

>>> LINK <<<

This is one of the most hopeful pieces of news I have read. At least something is moving in the right direction. I wish it had broken down how much was due to pay downs and how much was due to write offs of bad debt.

Would this apply to "settlements" as well? There seems to be a lot of debt sales going on in which collection agencies are buying debt for pennies on the dollar, then attempting to "settle" for some fraction of the original debt while making a profit - say 75 to 25 cents on the dollar. Is this "lost" debt being counted as "consumer debt reduction?"

I'd tend to think it's lumped in there somewhere, but I'm not sure how you'd go about checking.