Since the financial crisis erupted, millions of Americans have ditched their credit cards, accelerated mortgage payments and cut off credit lines that during the good times were used like a bottomless piggybank. Many have resorted to a practice once thought old-fashioned—delaying purchases until they have the cash.
As a result, total household debt—through payment or default—fell by $1.1 trillion, or 8.6%, from mid-2008 through the first half of 2011, according to the Federal Reserve Bank of New York. Auto loan and credit-card balances in August had their biggest drop since April 2010, the Federal Reserve said.
“Folks aren’t borrowing,” said Jim Ernest, executive vice president at Provident Credit Union in Redwood Shores, Calif. “They are paying down debt and continuing to save.” Since January, 12% of the credit union’s mortgage customers have made at least $1,500 in extra payments.
Nearly 300 borrowers have made at least $1,000 in additional payments on car loans from Provident, said Mr. Ernest, who confessed he sometimes can’t sleep—Provident’s loan portfolio has shrunk by a quarter since the end of 2008.The change in attitude stretches far beyond Mr. Ernest’s credit-union members: two-thirds of Americans polled online in July by U.K. research firm Absolute Strategy Research said they planned to either reduce their debt within a year or stop borrowing altogether.
From 1997 to 2007, household debt ballooned from 66% of economic output to 98%, according to Federal Reserve data. As of June, the percentage had since been whittled down to 89%.
American households closed 103 million credit-card accounts. And credit-card payments exceeded purchases made with plastic by an estimated $116 billion between the end of the first quarter of 2009 and the end of the second quarter of 2011, according to TransUnion LLC.