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May 16, 2007

Are consumers controlling their borrowing?

Getting into debt and staying there is a big issue for many households. Economist Mike Walden takes a look at whether consumers are collectively doing a better job managing their debt.

"Part of the answer says yes; the other part says no. And here's the scoop: The good part is that consumers actually have been adding to their debt at a slower rate. For example, in 2005, consumers increased their total debt by 13 percent," explains Dr. Walden, a professor of agricultural and resource economics at N.C. State University. "In 2006, they increased it by only 12 percent. Now that might seem like a trivial difference, but it amounts to hundreds of millions of dollars.

"But the bad news is that debt payments -- what we have to pay to service our debt as a percentage of our disposable income -- has actually gone up from 14 percent in 2005 to 14.5 percent in 2006," he adds.

"Now how can you reconcile these two things? Our debt did grow slower, but the problem is that interest rates have gone up over the past couple of years.

"So although we are adding to our debt at a slower rate, the higher interest rates are increasing what we have to pay each month to carry that debt."

Posted by deeshore at May 16, 2007 07:05 PM

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