Financial Distress around the Great Recession

Tuesday, October 11, 2016
credit card debt and financial distress
Thinkstock/max kegfire

U.S. households decreased their credit card debt substantially between 2007 and 2013. If this deleveraging was caused by banks tightening debt limits, as has been often suggested, then household financial distress should have gone up. However, financial distress actually decreased during this period, according to a recent Economic Synopses essay.

Research Officer and Economist Juan Sanchez and former Technical Research Associate Helu Jiang examined the period 2004-13, looking at two aspects of deleveraging:

  • The share of heads of households carrying a positive balance after their most recent credit card payment
  • The average debt per head of household for households with a positive balance after their most recent credit card payment

The authors found that the share carrying balances fell from 44 percent in 2007 to 34 percent in 2013. They also noted that the average debt among those with balances dropped from $7,328 in 2007 to $5,589 in 2013.

They also examined household financial distress over the period 2004-15 via two definitions:

  • High credit, or the fraction of households using all credit available from their credit cards
  • Delinquent, or the fraction of households with credit card payments that were 90 days or more late

Sanchez and Jiang found that the measures showed similar levels of financial distress. They also followed similar patterns, remaining relatively constant from 2004 through 2007, then declining steadily. For the period 2008-15, distressed household share declined 41 percent (from 8.3 percent to 4.9 percent) as measured by delinquency and 53 percent (from 7.6 percent to 3.6 percent) as measured by high credit.

The authors suggested that post-crisis deleveraging did not drive more households to financial distress. One possible reason they gave for the deleveraging without distress is that households chose to pare down debt in light of the recession, rather than being forced to.

Sanchez and Jiang wrote: “Overall, the analysis suggests that a contraction in credit demand may have played a role in the deleveraging. Credit supply stories could have also played a role. However, the tightening must be such that it does not imply an immediate increase in household financial distress, which would be counterfactual to the data presented previously.”

Additional Resources

Posted In Financial  |  Tagged juan sanchezhelu jiangdeleveragingcredit cardsgreat recessionfinancial distress
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.
comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.

Subscribe to
On the Economy

Get notified when new content is available on our On the Economy blog.

Email Alerts  |  RSS

About the Blog

The St. Louis Fed On the Economy blog features relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts.

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Contact Us

For media-related questions, email For all other blog-related questions or comments, email