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The Evolution of Debt Balances
Sam Chapman and Yuliya Demyanyk / Federal Reserve Bank of Cleveland / May 2, 2013
Since the end of the recent financial crisis, individuals have been reducing the large amounts of debt that they had built up prior to the recession. Recent studies show that the percentage of individuals holding debt in 2012 is less than in 2000. (See this Census Bureau study and “Uneven Debt Burdens across the States”).
As of the end of 2012, 25.6 percent of individuals in a representative sample we analyzed have no debt. This fraction increased from 14.5 percent in 2000 and 17.3 percent in 2007. Forces driving this large deleveraging may include foreclosures, bankruptcy, decreased bank lending, decreased consumer spending, or simply a decreased individual appetite for debt. Whatever the cause, it is informative to follow those individuals with zero debt over the past 12 years to analyze the trends that may have led them to their current deleveraged state.
Using data from Equifax’s Consumer Credit Panel, we look at individuals’ debt in the fourth quarters of 2000, 2007, and 2012 (henceforth referred to as 2000, 2007, and 2012). Equifax provides us with the credit bureau data for a 5 percent random sample of the U.S. population. We restrict all available data to the individuals that existed in all three periods so that we can see the evolution of debt over those years as opposed to the behavior of new borrowers entering or other borrowers exiting the sample. As a result of this restriction our data sample covers about 9 million individuals, for whom we adjust debt to account for joint accounts with other individuals (so everybody’s debt is counted just once).
The chart below shows this evolution of individual debt through the three periods. It shows shifts to and from zero balances and positive balances in each year. The black and blue bubbles represent the proportion of individuals with zero and positive balances, respectively, in the corresponding year. If an individual had a zero balance in 2000 (black bubble), he or she could have a zero balance or a positive one in 2007. In 2012, again their balance could be positive or zero. Those with a positive balance in 2000 could increase, decrease to a smaller positive balance, or decrease to zero in 2007, and then have a zero balance or a positive balance in 2012.