U.S. Consumers Are Paying Down Their Debt

In an era of non-stop negative news circling and pertaining to the economy, there is at least one very positive light shining through. And that light is the noted recent trend of the American consumer, quickly paying off their credit card debt, a sensitive topic in the past.

The renowned credit bureau TransUnion put forth information this past Tuesday that consumers’ credit card-related debt had fallen to the lowest it’s been in a decade. The rate of credit card debt now sits at $4,699 per borrower, as of the second quarter of this year. That is a decline of 5% year by year.

On a similar note, the overall number of consumers 90 or more days late with their credit card payments fell 0.6% in the second quarter to its lowest level in some 17 years. As wonderful as that can be to hear, it leaves a nagging question:  what’s behind this occurrence?

Lenders seem to have been driving the impetus behind this movement by writing off uncollectable debt, closing the accounts and altogether closing off the credit lines of the most at-risk borrowers (those who typically were not making any payments on their debt).

Another TransUnion study shows, though, that the not-so-risky American borrow could be every bit as responsible for this turn-out, too. How so, exactly?

Consumers made about $72 billion more in purchases on their credit cards in the time spanned between the first quarters of 2009 and 2010, TransUnion found. Put that in staunch comparison with the $86. 6 billion in charge-offs.

People have their various methods of dealing with their individual debts. Some have taken to second or even third jobs, while others are taking advantage of all the 0% introductory rates being offered by some card companies.

Others, though, have just had to sacrifice certain funds and expenses. These sacrifices include cutting off not-necessary spending, such as entertainment and travel costs. Such is the case of the woman behind the popular website, the “Penny-Pinchin’ Mom.”

Tracie Fobes, the mom herself, owed (between her and her spouse) $35,000 to $40,000, mostly due to credit cards and auto loans.

“We had our second child and felt like we were living paycheck to paycheck,” Fobes said in an interview with the Daily Finance website. “We were doing okay, not struggling, but we felt the money was controlling us instead of us controlling the money.”

By 2010, after engaging in an array of activities such as garage sales and pitching items on Craigslist, she and her family were clear of everything but their mortgage. She started her blog to illuminate others to her successful spending tips, in 2009.

Fobes isn’t alone with her circumstances, either. There are numerous stories akin to hers in America. And people who find themselves struggling with debt can learn from them. Here are some ideas for paying down your own debt, if you find yourself burdened with them.

Make sure you know what you’re spending and where you’re spending it at. Take note of it in a budget of some sort, be it paper or electronic. Both work, as long as you know where your money is headed. Use it a calculator to figure out how some extra income would help your monthly spending budget.

Once you have that mapped out, you can cut it down into smaller amounts, be it daily or weekly. Make a list of your credit cards, as well. Be sure to sort it from highest to lowest, in terms of interest, and couple it with the amount of debt each card has. From there, call your lenders ask if they would be willing to reduce your interest rate by 10 points. Indicate that you’ve received more competitive offers in the mail or wherever. With these phone calls, be certain you are talking to the RIGHT person of authority.

Pay off the card with the highest interest first and work your way down to the smallest. When you are finally clear of the clutter that is credit card debt, take the monthly amount you were putting aside for it and turn it into a savings account.

With that savings account, have a goal to collect enough for three months to live off of, in case of an emergency scenario that would set you back into the black you just escaped from. And when doing your credit card research for the future, take time to compare credit cards and see that you’ve found the best-suited for you and your family.