More Just Say No To Credit Cards - Spokane, North Idaho News & Weather KHQ.com

More Just Say No To Credit Cards

USATODAY.COM - Five years ago, Rajendra Hariprashad thought he was living the American dream.

The native of Guyana and former Marine carried balances on his credit cards, went out to dinner at least five times a week, and didn't pay attention to the price of gas.

Today, Hariprashad, owner of Ena's Driving School in Queens, N.Y., pays off his credit cards at the end of the month. He's making extra payments on the mortgage for the house he shares with his parents and hopes to pay it off in about 10 years. He shops around for the cheapest gas he can find and pays with cash to get a discount.

Hariprashad, 34, says the recession forced him to change his ways. Business slowed because customers didn't have as much money to spend on driving lessons. Faced with the threat of bankruptcy, he cut back on discretionary spending and used the money to pay off his credit cards. "Now, I have a clean slate," he says.

After a prolonged bender of spending and borrowing, millions of recession-scarred Americans have followed a similar redemptive path. Since the third quarter of 2008, overall U.S. household debt, which includes credit cards, mortgages, student loans and car loans, has declined by more than $1 trillion, according to the Federal Reserve Bank of New York. While the rate of the decline has slowed somewhat in recent months, total consumer debt is still down 8.6% from the third quarter of 2008.

Some of the reduction in debt stems from tighter credit standards, which have made it more difficult for consumers to borrow. Financial institutions have also written off billions in debts deemed uncollectable. But other trends point to a dramatic change in household balance sheets:

Despite record-low interest rates on certificates of deposit and bank accounts, Americans are saving more. The personal savings rate, which measures how much disposable income Americans save, was 5% in July, nearly four times the level in 2005.

Homeowners are shortening the terms of their mortgages. In the first quarter, 34% of refinancers paid off a 30-year loan and switched to a 20- or 15-year product, the highest level in seven years, according to mortgage lender Freddie Mac.

Less than a quarter of refinanced loans were "cash out" deals, which occur when homeowners refinance for more than they owe and receive a check for the difference, according to Freddie Mac. >>>CLICK HERE TO READ MORE

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