In an effort to improve their financial condition and perhaps protect themselves in the event of a double-dip recession, more families are reducing the amount of debt they carry.
A new report released by the Federal Reserve Bank of New York shows that Americans have reduced their debt levels by 1.5 percent to $11.7 trillion dollars at the close of the second quarter. This figure also accounts for a 6.5 percent debt reduction from peak levels seen during the third quarter of 2008. The Fed reports that the decline also marks the seventh consecutive quarter that consumers have successfully reduced the amounts they owe.
Despite the declines in household debt, many Americans were already carrying large amounts that have gone into delinquency, putting their credit score in serious jeopardy. By the end of the second quarter, 11.4 percent of outstanding debt was considered delinquent, amounting to $1.3 trillion. More than $986 billion is categorized as "seriously delinquent" - a title given to outstanding balances that are more than 90 past due. Serious delinquencies grew by 3.1 percent in the second quarter.
The bank also reports that the number of Americans with a bankruptcy listed on their credit reports has reached 34 percent - an increase from the levels seen in previous years.
"While we usually see jumps in the bankruptcy rate between the first and second quarter of each year, the current increase is higher than in the past few years, when it was around 20 percent," the report said.
The amount of debt amassed by many Americans following the subprime mortgage crisis and subsequent recession has led to a severe decline in the credit scores of many individuals. Recent reports highlight that the credit scores of more than 43 million Americans have fallen below 600, making it very difficult to secure not only loans and competitive insurance rates, but employment.
To add to that concern, a recent CNN article reported the results of an employer survey, in which 49 percent of hiring managers said they will not consider job applicants for a position if they have accounts in collections listed on their credit report. Another 25 percent of employers will not hire a person who has filed for bankruptcy.
Consumers with debt should regularly check their credit reports to make sure the right amounts are being reported and that all information listed is accurate.