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Less debt in Texas is not sign of rebounding economy

Americans have less credit card debt than before. In 2007, 46.1 percent of families held credit card debt averaging a $3,100 balance. In 2010, after the beginning of the economic downturn, only 39.4 percent of American families held balances on their credit cards. The median balance of credit card debt also fell to $2,600 within this time period. Although this may suggest that families in Texas and the rest of the nation are no longer affected by overwhelming debt and the economy is improving, things are not exactly as they first appear.

Statistics suggest that the drop in credit card debt resulted from an overall loss of wealth in American society. Economists believe that families are carrying less debt due to more people filing for bankruptcy, which generally erases much of their old debts. This is especially true in a Chapter 7 bankruptcy which is designed to clear unsecured debts, such as credit card debt. Economists claim that after the recession many people lost their jobs, forcing them to file for bankruptcy.

A lack of an improving economy can be seen in other statistics. For example, during the period of 2007 to 2010, the median family income fell 7.7 percent, constituting a drop from $49,600 to $45,800 within this time period. During the same period, the average family net worth fell from $126,400 to $77,300, a significant decrease of 38.8 percent.

Due to the large amounts of defaults, the banks in Texas and elsewhere are more cautious in their lending practices. Consumers are also more cautious about taking on credit card debt, which contributed significantly to the overwhelming debt that caused many families to file for bankruptcy in the first place. These two factors appear to have accounted for the decrease in overall credit card debt.

Source: KUT News, "Credit Card Debt Cut: The Reason May Surprise You," Marilyn Geewax, June 19, 2012

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