Welcome to austerity, New York- style.
Send the kids to state schools, and let’s cut up one of the credit cards — that’s the take-away from the latest household-debt numbers gathered by the credit-score website Credit Karma.
But city residents aren’t southern Europeans: While they are cutting back in some areas, they have ramped up on auto and home loans, according to the report.
“There are several things going on here,” says Ken Lin, Credit Karma founder and CEO. “We are seeing the rebound in the housing sector because all of the write-downs and bankruptcies have disappeared. So now people are buying homes again.”
He added that auto loans have been on the rise for the last three years as Metro-area residents put off replacing their cars during the economic downturn of 2008 to 2010.
Lin, said that people can rationalize auto purchases because they need cars to make a living and thereby pay down red ink.
On the assets side of the ledger, wages are rising, which is leading to a decline in credit-card debt.
“During the worst of the recession, we saw close to a trillion dollars in credit-card limits wiped out. This meant people having their cards declined, having their limits reduced or simply having their account closed,” Lin explains. “It will take a little bit of time to rebound from that.”
He added that besides card issuers cracking down on card users who they think might have become bad risks, consumers “have also become a little bit more careful. They are no longer using their homes as ATM machines.”
The average New Yorker may also still be wary of the recovery and remembering the overextended-credit lessons of the recession.
Bayshore, NY, financial adviser Charles Hughes said the Credit Karma survey results prove that consumers are learning to cut down on revolving debt (carrying debt from month to month while paying interest on it).”
“It is the direct result of consumers being frightened to death by what happened in 2008,” said Hughes.
He added that consumers today are perhaps more wary about carrying revolving debt because “their card statements now show them how long it will take them to pay off a credit card debt if they just pay the minimum amounts.”
Credit Karma officials say they want to give their members the online tools to get control of their finances. Judging from some of the results of a recent survey, they have plenty of work to do.
“Nearly two-thirds of adults (64 percent) think about their physical appearance more than their debt,” according to the survey. Sixty-eight percent of women and 61 percent of men agreed with the idea that appearance is more important than debt.
(Getty Images)