Recently, I read the Wall Street Journal and came across a great article, Families Slice Debt to Lowest in 6 Years. American families as a whole are paying off their debt and cutting their budgets to the bone. As you can see in the picture above, household debt in the US has fallen to approximately 116% of disposable income. At a first glance this appears to be negative news because our debt is still higher than what we make, but in contrast to the 130% peak in 2007 it is fantastic news. Thousands of families are finally sick and tired of being sick and tired. Not only are people boosting the portion of their income that goes to paying down debt, but also they are increasing their personal savings. In 2010, the personal savings rate was around 5.8% up from a mere 1.4% in 2005. We have not seen people save this much since the 1990s when the internet was synonymous with AOL’s “You’ve got Mail!” I am glad to see people’s finances getting better and hope this trend continues. I have included a chart below showing this positive trend.
Update: I hit a major milestone myself this week and have successfully paid off all of our unsubsidized loans we got because of the MBA program. Unsubsidized loans from the Direct Loan program carry a 6.8% interest rate which starts to accrue immediately. You are not required to make any payments while you are in school, but they are still hitting you with the interest. I am really happy because I have had these types loans since August 2009 and now I have no more interest accruing. $21,124.58 of subsidized loans remaining until debt free. Subsidized loans don’t accrue interest or require payments so they are an interest free loan until you graduate. Looks like our goal of paying these off before graduation is going to come to fruition.
