Indebtedness fell overall, but jumped in several areas in the third quarter

The debt obligations faced by Americans to lenders declined in the third quarter of the year, but the amount owed on non-real estate accounts surged, indicating that consumers are leaning more heavily on everyday financing.

The total amount of money owed nationwide shrank to $11.31 trillion between July and September, down $74 billion from the total seen at the end of June, according to the latest Quarterly Report on Household Debt and Credit issued by the Federal Reserve Bank of New York. That's a 0.7 percent decrease, due largely to drops in mortgage debt and home equity lines of credit, which totaled $120 billion and $16 billion, respectively.

However, that also means other types of borrowing, such as student loans, auto financing and credit card balances increased significantly during the three-month period, the report said. In fact, the three factors combined rose by 2.3 percent to a total of $2.7 trillion.

"The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position," said Donghoon Lee, a senior economist at the New York Fed. "As consumers feel more comfortable, they may start to make purchases that were previously delayed."

Behind the real estate drop
The total amount owed on mortgages in particular slipped significantly, and now stands at $8.03 trillion nationwide, the lowest level observed since 2006, the report said. This change came at the same time as another large decline in delinquency on those home loans, which slipped to 5.9 percent of all outstanding balances, from the previous quarter's 6.3 percent.

But at the same time, mortgage originations, which indicate interest in new financing of this type and the New York Fed tracks by examining all new home loans in the credit market, rose once again in the third quarter to a total value of $521 billion, the report said. This was the fourth straight quarter in which the value of originations rose.

And even as more new consumers sought mortgages and delinquency on existing loans declined, the backup of properties in the foreclosure process once again led to many Americans  facing repossessions, the report said. In all, more than 242,000 people nationwide had foreclosure notations added to their credit reports, though that was down 5.5 percent and continued the trend of drops to levels closer to those seen prior to the housing meltdown.

Consumers' other credit problems
The Fed's statistics also showed what many other reports have borne out in the last several months: That borrowers continue to lean more heavily on their credit cards in their everyday lives, though debt on these accounts is still well below levels seen prior to the recession. In all, outstanding credit card balances rose about $2 billion, but that relatively low number might be somewhat misleading, the report said. For one thing, the total value of credit limits (that is, the amount [individual] consumers are able to borrow on their cards) actually slipped $9 billion, down 0.3 percent, and though that's considered more or less flat, it nonetheless shows that consumers are borrowing more despite being able to technically borrow less.

Further, there were 382 million open credit card accounts through the end of the third quarter, and that too was a decline from the previous three-month period, the report said. And in general, consumers' interest in acquiring new accounts also slipped, and did so for the third consecutive quarter. However, the decline in requests for new accounts in the last six months was down very slightly, falling to 167 million from the 168 million seen in the second quarter.

Where student loans are concerned, the total value owed jumped to $956 billion, up $42 billion from June, the report said. But only about half of that ($23 billion) was new debt, and the remaining $19 billion was related to defaulted loans that were recently updated on consumers' credit reports. However, because of that increase, 90-day delinquency rose to 11 percent.

Meanwhile, auto loan debt climbed to $768 billion, the highest level seen in close to four years, the report said. Further, originations of these loans jumped for the third quarter in a row, rising 4.4 percent to $85.8 billion, and delinquency held more or less steady at 4.2 percent.

Instances of delinquency and default, as well as larger debt totals, can lead to significant declines in consumers' credit scores. However, another major problem in this area can arise when there are unfair markings on their credit reports. As such, borrowers should take the time to closely check these documents with some regularity. If any such entries are discovered, it can be a good idea to contact a credit repair attorney.

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