Households working on debt management

06.15.09
By Nicholas Storie

In an effort to keep credit card debt in check, consumers have been trying to pay off bills and ease up on luxury goods and non-necessity spending.

In fact, a number of consumers who received tax refunds from the government had tagged much of the money to pay off credit card debt and other outstanding bills instead of making a big purchase.

This type of prudent financial management is wise - especially as the recession lingers on and job worries continue.

A report released last week shows that Americans are making some headway with debt management.

The Federal Reserve's first quarter report on the flow of funds in accounts held by businesses, the government and families showed that household debt contracted for the second consecutive quarter.

In a breakdown of household debt, the Fed reported that home mortgage debt was flat and consumer credit contracted at an annual rate of 3.5 percent.

Consumers keeping a more watchful eye on their borrowing may be doing so because they have seen their wealth decline.

According to the same Fed report, household net worth - which is defined as the difference between the value of assets and liabilities - is said to be $50.4 trillion as of March 31, 2009. This amounts to a drop of about $1.3 trillion compared to the last reading.

The loss in net worth is largely attributed to declining stock portfolios before the end of the first quarter and falling home prices.

But at the same time household debt dropped, the government's spending continued. The flow of funds report shows that federal government debt growth was 23 percent in the first quarter with money being funneled to banks on Wall Street and programs around the country to spur job creation.

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Consumers see net worth fall