Americans have less debt, more savings

What do you call $899.4 billion in credit-card debt? A good start.

As staggering as that sum sounds, August actually marked the 11th month in a row Americans have collectively paid down the total volume of their debt, according to new data from the Federal Reserve.

The amount is what the agency calls "revolving debt," which includes things like credit cards and home equity loans but not car loans and student loans. The amount of this second type of debt has also dropped by a bit, although not as dramatically.

According to the Fed's number-crunchers, we're paying down our revolving debt at an annual rate of 13.1%, compared with 1.6% for non-revolving debt.

There are two main reasons for this decrease: Many Americans are still deeply worried about the state of the economy, and credit-card companies have been hiking interest rates in anticipation of next year's regulations banning various fees and rate hikes.

Even as we're whittling away at the vast amounts we've borrowed, we're also doing the other thing financial types are always harping on Americans to do more of: We're socking away some of our cash for a rainy day.

In July, the savings rate was at 4.2%. Now, that doesn't sound like a lot (and really, it's not; the notoriously frugal Japanese saved as much as 14% of their income in the early 1990s), but it's a giant step in the right direction.

As recently as 2005, our national savings rate dipped into negative territory; that is, we were collectively spending more than we were making.

For some perspective, that year's 0.5% negative savings rate was the worst since 1933, in the middle of the Great Depression. Back then, people weren't spending beyond their means so much as barely eeking by and still not being able to afford it.

Four years ago, on the other hand, we were feeling flush and borrowing scads of money with the (unwise) assumption that the rising value of our homes would allow us to continue spending more than our incomes indefinitely.
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