It may not feel like it right now , but this is a win for consumers. Every month that spending goes down and savings tick up empowers consumers against these usurers. It will take some time and there will be more pain , but if this generation of borrowers learns a permanent lesson from the last few years of banking excess ,it will be worth it. You just have to know that the (very well paid) execs at Citi , BOA and Cap One are looking at these numbers with some real fear that we really get it this time and have as a country started down the path to debt freedom.

But just like a patient that feels better before they are truly well ,there is some hard plowing still to do.

Woohoo! I'm well on my way to paying off my last little bit of credit card debt! And then...my student loans kick in. I only have about 5 grand to pay off, though, so it won't be too bad. But then the lease on my car is up and I have to buy it. It just never ends!

Are consumers paying off debt, or is debt being released through bankruptcies?

I'm so proud of you America! Now lose a few pounds and stop wearing white tennis shoes and talking so loudly while on vacation in Europe, and we'll kick those stereotypes to the curb!

@The Ghost of SirNotAppearing: Wow, what the heck is that mess?

@Hoss:

Probably a bit of both. I know personally I am saving about 2x more than I was (which still isn't enough), and *trying* to pay down my cc debt.

I wonder how much of this is from bankruptcy and will the people that have gone through bankruptcy learn anything or will they be right back at it once they can get their hands on credit again.

Will people who are spending less, paying down debt, and saving more learn from these times, or will these same people fall back into their old habits when times are good again?

@katstermonster: Keep it going Kate-monster! Trekkie believes in you!

@pecan 3.14159265: if past is any indication, average human "lesson learned" memory span is teeny tiny small.

@pecan 3.14159265: Depends on how much responsibility for the situation they're willing to take, I think. Someone who stands up and says "Wow, I overspent, and I got myself into this mess" is more likely to go "The economy tanked and this is all the fault of shady dealings! Screw them!" and might very well be back with the plastic in just a few years.

@MostlyHarmless_Under Influenza: Like a goldfish, in fact. So teeny.

Well, with 19.99% as a good APR, and 29.99% as the standard, there's really no good reason to use credit cards or carry a balance.

Pay them off and cut them up.

@katstermonster: I don't know...goldfish are pretty smart, actually. [mythbustersresults.com]

@katstermonster: Except, less cute. Far less cuter, in fact.

My wife and I have been steadily paying down excess debt over the past few years. We are doing the debt snowball and *should* have our car payment gone in about 4 more months which will help speed up a couple of more medium sized debts. In the past few years we've paid off almost $20,000, which is even more impressive considering she is a SAHM with our two kids and we get by on my average income alone.

@pecan 3.14159265: I think there's a chance it'll stick with us in some way. There's a whole generation of people that are super savers because they grew up in the Depression. I don't think it'll be that dramatic, but I think the lessons will stick with some of us.

I'm considering changing my username to Pollyanna now.

It's a trade off between personal debt and public debt. Each additional 1% households save of their income, consumer spending drops by $109 billion.

Companies post lower profits and layoff workers. Government raises debt to stimulate the economy. Those laid off workers rack-up debt again. It's all one big circle.

@lincolnparadox: That is one reason I am thinking the high rates we are seeing won't stand for long.

Don't look at me, I had nothing to do with it. Credit card companies will be pleased to hear that I am still completely incompetent when it comes to managing my finances.

@katstermonster: oh i know plenty of people who would KILL to owe 5k in student loans.

i finally start working next week...so i can kill off my credit card debt within the next month or so.

i need to consolidate my federal loans to do IBR, so that all my money can go to that bitch Sallie Mae who owns my soul. once i buy my soul back from her, I will be so much happier

@pecan 3.14159265: I know you probably didn't mean it like this, but I wanted to chime in about "spending less" being some kind of good lesson. There is no good or bad lesson about simply spending less. Spending is perfectly fine and is generally very healthy for the country so I think it is bad idea to talk about it like it is some kind of poor habit.

Spending money that you do not have on the other hand can lead to problems and there are lessons to learn there which is probably what you really meant. However, there are also ways to very responsibly spend money that you do not have too including those which do not result in paying everything off within a month. So I guess the real question is not whether Americans are learning lessons about spending less and saving more. It is a question of whether or not they are learning to spend responsibly and strategically.

@lincolnparadox: Opt out. If you get rate-jacked and carry a balance, opt out.

__

No reason to use a credit card? Use it, pay in full, get rewards.

@lincolnparadox:

Wow I must be doing great. My citibank is at around 9%, and my FIA is around 9% as well. Just crossing my fingers they stay low since I've got about 10k on them combined... (yeah yeah, I know).

I'm all for consumers paying off their debt, it's just sad that it took this long and a financial catastrophe to make it happen...

And as for beating up on the credit card companies, I agree they're crooks, but they're only able to do it because the consumer continues to let them.

If people would just pay off their cards and leave the banks that abuse the consumer, those banks would go out of business, and other banks would see the writing on the wall and produce more honest products, but that doesn't happen, the consumer complains about the horrible service and constant fees, yet they still do business with the bank.

So if you're going to beat on the banks, beat on their enablers, the very consumers who are complaining.

Some are paying down debt. Others are just refusing to pay at all. And many more are declaring bankruptcy. All this means less profit for the banks.

So what do they do?

They lower balance limits to further limit their interest revenues. And they jack up silly fees their either cause people to move on (or do the refusal to pay thing) or get a people-oriented congress to pass new laws limiting or banning many fees.

Banks sure don't look like a very good business model to invest in, anymore ... unless you want to short them.

@sponica (on furlough): Yeah, I'm very lucky. I went to a state school on several scholarships and my parents were generous enough to pay a large portion of my tuition (they gave me a number when I was looking for schools, I was responsible for anything over that). I only ended up taking out a loan because of cashflow issues. Unfortunately, it's going to take me over a year to pay off, since I'm in grad school and decided not to defer, due to it being an unsubsidized loan. Oh well!

@Naame: Indeed, I meant that presumably, people in debt who are struggling to pay it down or who previously were not tackling their debt aggressively enough should spend less in order to not further the cycle. The more money spent paying down debt, the less money you're putting into savings - so spending less means more money one can use toward paying debt, which would mean debt can be paid faster, freeing up money to be put into savings.

People who aren't in debt and are less likely to fall into it - by all means, spend! I'll join you!

@pecan 3.14159265: Bummer. Figures that they would have busted that myth. Although their methods are often the source of much amusement among me and my colleagues. Like, "Wait, a single data point is okay?? Why am I doing all this work???!!" hahaha.

@Naame:

If you are using revolving credit card debt (unless you have a 0% promo rate or something) you probably aren't using credit "responsibly and strategically".

It's nice that consumers are learning to save, even though the government seems inclined to reward people for buying things they otherwise wouldn't buy (cash for clunkers, the first time homebuyer credit, cash for appliances, ect)

@katstermonster: I completely forgive them for anything like that, though, mostly because it's a one hour TV show and you can't fit everything into it to provide everyone with a concrete explanation for every data point used.

From Wikipedia:

Testing is often edited due to time constraints of a televised episode. It can often seem as if the teams draw results from fewer repetitions and a smaller data set than they actually have. During the Outtakes Special, they specifically stated that while they are, in fact, very thorough in testing myths and repeat experiments many times in many different configurations, it is simply impossible to display all of it during a program. Beginning in the fifth season, episodes typically contain a prompt for the viewer to visit the show's homepage to view outtake footage of either additional testing, or other facets of the myths being tested. However, Savage himself has acknowledged that they do not purport always to achieve a satisfactorily large enough set of results to overcome definitively all bias.[12]

@wagenejm: Sometimes, I wish I could "like" Consumerist comments the way I can on Facebook.

@Skaperen: I think they got addicted to the higher than normal profit margins and are in the same mind set now. They are going to have to readjust. I thought they would have done a major reset with the big losses and just try for a fair return. I still hope they do. Consumers are going to be smart for a few years at least and banks will need to adjust their expectations. I hope.

It shouldn't matter that much what banks do anymore. It is more about how we react. Banks can charge 30% if they want and try to play gotcha with the late fees, I am not going to be buying. The big thing is now that they won't be able to increase rates on prior purchases, we will have more of a choice. If they were to raise rates on new purchases we can just not make them. Something tells me they will be doing less of it than they used too! The new legislation is better.

@madanthony: In the case of cash for clunkers and the first time homebuyer credit, I don't think the majority of those people were necessarily sitting around, unable to afford anything. I think most of them were simply trying to make the best decision, and incentives came along.

A lot of the cars traded in during cash for clunkers were drivable, but probably on their way out sooner or later. Most people probably really wanted a new car, and just couldn't bring themselves to make that committment.

With the first time homebuyer credit, it simply gave people who were uncertain an incentive to pull the trigger. The market was friendly to first time homebuyers, and there were still people who were very reticent to take the plunge - the market being the way it was, the uncertainty, etc. The credit allowed them to feel a little better about putting so much money into a new home.

@pb5000: Congrats! This opens up a whole other pandora's box, though, being that your wife is a SATM. I'm curious - has there been much discussion between you two about whether it would have been more financially feasible for her to go to work, at least part-time, to help pay down the debt?

A friend of mine did this juggle recently, and decided that she would rather stay home with her kids because child care ate up a good portion of her entire yearly income, so she would have been making very little anyway.

@ElPresidente408: Although you compare the Chinese savings rate which is over 20% of their income.

@pecan 3.14159265: That would depend on your mindset, for us, daycare just isn't an option. Maybe we're old fashioned but we just feel it would be best for one of us to be with them full time. Also, she is/was a teacher and will be able to go back when they are in school full time. Just like your friend, for my wife on a teaching wage, you're practically working to pay for day care and it's not worth it.

"Take that"? You do realize the banks obviously wanted this to happen, and so set up the incentives that would make it happen? Citi doubled my APR and my current balance is about half of what it used to be. I'm sure some financial model somewhere predicted my behavior to a T.

@jscott73: It's definitely a case-by-case thing. If I had to guess, I'd say the majority of people who go through individual bankruptcy are horrified to do so, and it's a last resort. Those are the people who learn from it and do their damnedest to avoid a repeat performance.

There are other people like a former colleague who (before the bankruptcy laws were gutted) intentionally maxed out all his cards buying unnecessary luxuries and toys before he went into the process. Scumbags like that learn, but they learn the wrong things. I can only hope he's had a too-big-to-afford house foreclosed upon by now.

@madanthony: The government is desperately trying to prop up demand - a tall order with the highest unemployment in 26 years.

@jscott73: Yes, they'll learn. They'll learn not to get cancer, have strokes, be hit by cars, need Caesarian sections, be diagnosed with chronic diseases, or otherwise wind up with major medical bills.

They'll learn not to be laid off from their jobs in a recession.

Sure, everyone has heard a story of someone who overspent on purpose: because the kid with the motorbike makes a better story than the couple who declared bankruptcy because, even with him working full-time and her working part-time, can't keep up with the bills from her chronic illness. Those latter are the ones who are embarrassed, so they try not to tell people about the bankruptcy, and just quietly pay cash because they don't have credit anymore.

@pb5000: Being a teacher is certainly affords more flexibility. I have family who did the same thing - I also had family who were full time working parents and their families are fine as well. I'm just always very interested in how people juggle their responsibilities, particularly parents who choose to stay home with their children.

I've been following the Freaky Fortnight blog on Slate, perhaps you've been reading it as well. A Slate editor and his SAT wife (though she hires a babysitter part-time so she can freelance from home) trade places for two weeks. She goes to the office, he stays at home with the kids. It's a very interesting exercise in role reversal. [www.slate.com]

I think this is more because card companies are slashing credit lines and raising APRs.

@Pinget: Capital One pulled the same stunt on me, my cash advance rate actually tripled while the regular rate doubled. I'd already been paying down the balance, but at that point I got a card with a better rate than my original CapOne rate, through my local bank, and stopped using the CapOne card completely. Within a month of that, they began sending me "checks" and "balance transfer" offers on a weekly basis, all of which get ignored and shredded.

They would really like me to run up the account at the new rates, lots of fat fees going into their pockets.

Not a chance.

@katstermonster: Ha! I lease too. However, my net worth is positive right now, and if all goes well, I will only need to take a smallish loan when the lease is up. (I am saving with the target of NOT having to take out a loan, but life happens).

My sis loaned me 3.5K when I landed the job. Took me about a year to pay it off. Could have paid it off sooner if I wanted, but she was sort of using me as a savings account :P

@MeOhMy: Shhhh!!! The F word is not very welcome around these parts ;)

@Pinget: Citi increased my APR by 5% also, but I opted out. Did you opt out? They still let me use the card until it expires, so I will be able to pay it off under the old rate. I can't think of any reason to accept a doubled rate.

@gjones77: True that.

@pecan 3.14159265: I don't think there is anything wrong with both parents working, you have to do what's best for you and your family and that varies per family. Our situation currently works for us and we're happy.

I've not heard of the slate editor SAH switch, I'll check it out, thanks.