Household Debt Falls In Fourth Quarter

Americans continued their post-recession debt reduction habits during the final three months of 2010, cutting outstanding mortgage payments during this time.

According to a new survey by the Federal Reserve Bank of New York, total consumer debt dropped by 1.3 percent during the fourth quarter, bringing the total down to $11.4 trillion.

Since hitting its peak in the third quarter of 2008, Americans have reduced their debt
total by more than $1 trillion, Bloomberg reports. Overall, the study found that U.S. households have cut their debt and increased their savings since the end of the recent economic downturn.

"We know that this phase is a gradual transition process, not a quick event, as households and banks slowly complete their painful adjustments," said New York Fed President William Dudley. "Once the adjustments are completed, households can consume more and regain their access to credit, and these developments help to support a more vigorous economic recovery."

Americans also made several other important improvements, reducing the number of bankruptcies and increasing the number of mortgage originations during this time. This trend has now left many in a better borrowing position in 2011, and the Federal Reserve Bank says these findings will help contribute to a positive economic outlook for the year.