Consumer debt in the Dayton region is among lowest in U.S.

Consumers in the region have one of the lowest average debt burdens in the nation, and residents continue slowly to pay down their financial obligations, according to data from one of the largest credit-reporting agencies.

Falling debt levels among consumers in the Dayton metro area may mean they have more disposable income, which could provide a boost to consumer spending and the local economy, experts said.

Debt reduction can help improve credit scores and interest rates, and it increases the likelihood that people will put money into their savings.

But debt also reflects consumer confidence, and some people may choose to shun debt because they remain worried about the economy and their ability to repay lenders. Some people may not qualify for loans because lending standards have changed.

“Some people may have reverted back to the old-fashioned, tightening of the belt, as far as their spending habits,” said Melodee Sheils, director of Consumer Credit Counseling Service in Dayton. “But some of it could also be a result of the strict tightening of credit in the last few years.”

In 2012, residents in the Dayton metro area on average owed $22,801 in consumer debt, according to a report released by Experian. The metro area includes Greene, Miami, Montgomery and Preble counties. The estimate includes all types of debt, except mortgage obligations.

Consumers in the region had the 11th lowest average debt burden among 143 U.S. metro areas. Locally, average debt obligations last year fell 1.1 percent from 2011. Across the country, debt levels rose last year.

Nationwide, residents in the La Crosse, Wis., metro area carried the smallest average debt load, $21,113. Reno, Nev., residents shouldered the most debt, $27,320.

Declining debt loads in this region, combined with an uptick in median income, likely meant many local residents had a little more money in their pockets, said Rod Griffin, director of public education for Experian. Local median income increased to $63,300 in 2012, compared to $62,400 in 2011.

“That suggests that people have a little more available disposable income to spend,” he said.

The economy runs on disposable income. Consumer spending accounts for about 70 percent of the economy, and consumers must spend more to give businesses an incentive to increase hiring. Large amounts of debt force consumers to spend less on shopping, recreation and travel, which impedes economic growth.

Debt piles up quickly when people live beyond their means, and that can be a source of stress and anxiety, and it strains relationships with loved ones and often harms the debtor’s health, said Lucia Dunn, economics professor at The Ohio State University.

Consumers who are struggling to pay their bills oftentimes treat their credit cards as an extension of their incomes, which can be devastating down the road, she said.

“Some people pay for groceries, doctor bills and rent with credit,” she said. “They buy now and pay later.”

She said reducing debt eases stress and is one of the primary ways consumers can get their finances in order.

Credit counselors and experts said low levels of debt in the region could also signal a cautious attitude about spending and investing.

Consumers typically are more willing to take risks and assume debt when they are optimistic about the future, Dunn said. The cloud of uncertainty that hangs over the economy may mean consumers lack confidence that financial conditions will significantly improve.

In addition, lending standards are more strict than they were before the downturn, meaning many people do not qualify for loans, said Sheils, with the Dayton credit counseling service. High unemployment could also play a role, because unemployed workers often cannot obtain traditional credit.

Debt is oftentimes unavoidable, and it is important to ensure repayment accounts for a manageable share of monthly income, Sheils said. Consumers need to save for unexpected financial problems and retirement. Medical emergencies, car repairs and job losses are just some of the economic obstacles that can crop up.

Consumers should try to keep their debt-t0-income ratio at about 20 percent of their gross earnings or below, Sheils said. When the ratios exceed 35 percent, consumers are considered a very high credit risk.

Financial responsibility requires that consumers closely monitor and evaluate their spending habits, said Katie Ross, education and development manager for American Consumer Credit Counseling, based in Newton, Mass.

Fortunately, since the recession began many consumers have educated themselves on financial matters and have worked out sensible repayment and savings plans, she said.

“Consumers have been taking ownership of their spending and proactively trying to turn their financial lives around,” she said.

But Dunn co-authored a recent study that found younger Americans are taking on more credit card debt than older residents, and they are also repaying it a slower rate. She said that suggests there may be more elderly people in the future with significant financial problems.

While local residents are cutting their debt loads, they are opening more credit cards, and delinquency rates on loan repayments have increased, Experian said.

Late payments rose by almost 10 percent last year, and Dayton consumers on average had 1.84 open credit cards in 2012, up 8 percent from the previous year. These trends could explain why the average VantageScore in the Dayton region dipped to 751 in 2012 from 753 in 2011. The average U.S. consumer credit score was 750 last year. Experian said the numerical range used by VantageScore is 501-990, with higher scores representing a lower likelihood of financial risk.

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