MONEY

Household Debt At Lowest Level Since 2006, Consumers More Comfortable Spending Again

10/15/2012 01:30 pm ET | Updated Oct 15, 2012

American households have gotten their financial footing back when it comes to debt and that could help the economy recover faster, economists say.

Household consumer debt is now back to pre-recession levels according to analysis from Moody's, Bloomberg and the Los Angeles Times reported. For Americans, that means a smaller chunk of every paycheck is going to paying off credit cards, mortgages and car loans. One notable exception to the paydown trend is student loans, which have soared in recent years as the costs for higher education have increased.

Economists are waiting to see if consumers will feel comfortable spending again or if their newfound penny pinching will sustain as the economic forecast remains grim.

Moody's chief economist Mark Zandi said the use of credit by U.S households would no longer be a "headwind" for the economy, but could soon help boost it instead, Bloomberg reported.

However, other economic concerns are still holding many American families back. In addition to stagnant wages, many households could face higher tax bills in 2013. Americans are also seeing higher spending across the board due to rising food and gas prices and increasing health insurance costs.

"We're going to try to live within our means because living beyond it didn't work out," Jack Ablin, chief investment officer at Harris Private Bank in Chicago told the Los Angeles Times.

During the economic recession, Americans took a more defensive position when it came to their finances. That meant paying off debt and reducing expenses. The massive number of foreclosures that occurred during the financial crisis has also reduced or eliminated mortgage debt for many households.

With the holiday shopping season right around the corner, economists are watching consumer sentiment to see if the recession-era mentality will last or if Americans will loosen their purse strings. One signal that Americans are ready to spend more: Consumer sentiment is at the highest levels it has been in five years, according to a Thomson Reuters/University of Michigan survey of consumers in October.

Other data also suggest Americans are ready to spend. Retail spending rose by 1.1 percent in September, according to the Commerce Department. That bump was helped by an increase in auto spending along with spending on the new iPhone 5.

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