Debt

Monthly Payments Have Fallen A Lot. Total Household Debt Has Not.

When we talked to Mark Zandi recently, he was relatively optimistic about the economy. One figure he cited: People's monthly debt payments now make up a much lower share of disposable income than they did during the bubble.

This measure is key to understanding the effect of debt on peoples' broader spending patterns, Zandi said. The less Americans are spending to pay off debt, the more Americans can spend on other stuff. Given that the slowdown in consumer spending has been a key weight on the economy, this is a big deal.

Monthly payments have fallen in part because of the super-low interest rates engineered by the Fed.

The total amount households owe has also fallen since the peak of the bubble, in part because banks have written off bad loans. But it hasn't fallen much: Total household debt is still quite high.

In yesterday's NYT, David Leonhardt pointed out that consumer spending is still way down, and isn't likely to come roaring back anytime soon. Calculated Risk, following Leonhardt's piece, suggests that households are paying down debt rather than going shopping — as evidenced by the fact that small businesses are still reporting that their biggest problem is a lack of customers (rather than, say, government regulation or access to credit).

In this way of thinking, the (still high) level of household debt is a more important measure than the (relatively low) size of monthly payments.

Planet Money Questions Of The Day: How do these two factors — your monthly debt payments, and your overall debt — affect how much you spend, and how you think about your household finances?

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