Americans Deleveraging: One in Three Has Reduced Debt

by Dennis Jacobe, Chief Economist

Nearly half say it is bad time to borrow

PRINCETON, NJ -- Gallup Poll trends show Americans continuing to cut back on debt. In a May 29 survey, 31% of Americans say they have decreased their total outstanding debt over the past six months -- essentially the same as the percentages who said this in April (32%) and March (34%). Only 23% of consumers increased their debt in May, also not much different from March and April.


Many Americans Say Now Is a Bad Time to Borrow

Over the past three months, almost half of Americans have consistently indicated that now is a "bad time" to borrow, including May's 46% "bad time" reading. At the same time, the 19% in May who say now is a "good time" to borrow is typical of such sentiment since March. While many on Wall Street are talking about a thaw in credit-market conditions, those on Main Street do not seem to perceive this.


Many Worried About Making Their Monthly Payments

The percentage of Americans saying they are worried about keeping up with their monthly payments over the next six months reached 25% in May -- up from 20% a month ago and 23% in March.



The Federal Reserve earlier this month reported that consumer credit had its second-largest decline on record in April, falling $15.7 billion; the Fed also revised the March credit plunge to a record $16.6 billion. In May, credit-card defaults hit record highs. Gallup Polls suggest that this is likely to be a continuing and possibly intensifying trend as consumers seek to deleverage their personal balance sheets and shed debt.

In part, consumers' reduced use of credit may be a result of the continuing consumer credit crunch, characterized by a lack of lending and loan availability -- at least, when compared to the credit availability of the past several years. The virtual shutdown of the securitization market for consumer debt, the elimination of home equity lines and credit-card borrowing lines, and the regulator- and lender-induced tougher underwriting standards have made money much harder to get for the average American consumer.

Correspondingly, consumers also perceive that now is not a good time to borrow; rather, it is the right time to reduce debt. Concerns about the job market play a role in these perceptions. So do new attitudes about saving and borrowing -- what many now call the "new normal."

A reduction in the use of consumer credit, like a lack of increase in consumer spending, suggests that Main Street has yet to begin enjoying the famous "green shoots" of economic recovery. However, more disturbing is the fact that one in four Americans are currently worried about making their monthly payments. This is a sign that the more traditional effects of recession are actually being felt on Main Street. And as noted previously, this could quickly turn "green shoots" into "dead shoots" if it continues for too long.

Survey Methods

Gallup Poll Daily interviewing includes no fewer than 1,000 U.S. adults nationwide each day during 2009. Gallup Personal Credit Index results are based on questions asked of 1,000 or more adults conducted March 23, April 27, and May 29, 2009. For results based on these samples, the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

Polls conducted entirely in one day, such as this one, are subject to additional error or bias not found in polls conducted over several days.

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