Meet the Author

Yuliya Demyanyk |

Senior Research Economist

Yuliya Demyanyk

Yuliya Demyanyk is a senior research economist in the Research Department of the Federal Reserve Bank of Cleveland. Her research focuses on analysis of the subprime mortgage market, on the roles that financial intermediation and banking regulation play in the U.S. economy, and on analysis of financial integration in the United States as well as in the European Union.

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Meet the Author

Samuel B. Chapman |


Samuel B. Chapman

Samuel Chapman is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

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Economic Trends

The Evolution of Debt Balances

Sam Chapman and Yuliya Demyanyk

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.

Following the lines next to the numbered black circles allows us to trace consumers’ respective balances in 2007 and 2000. The black bubble labeled number 1 represents those who had zero balance in all three periods. The largest black bubble in 2012, labeled 3, represents those individuals who began in 2000 with a positive balance, decreased to zero in 2007, and then remained at zero in 2012.

A more common trend expected during a boom-bust cycle is the one represented by the black bubbles labeled 2 and 4. Number 2 begins with zero debt in 2000, increases to a positive value in 2007, and then returns to zero in 2012. Number 4 begins with a positive debt balance, increases even further in 2007, and then decreases to zero in 2012. These bubbles represent those who increased their debt balances during the “boom” years between 2000 and 2007, but who have since decreased to a zero balance in 2012, four years after the crisis. Number 2 and number 4 combined represent about 29 percent of those with a zero balance in 2012. Finally, the black bubble labeled 5 represents those individuals with some form of debt in 2000, who had a decrease in 2007 (although they are still above zero), and finally a further decrease to a zero balance in 2012.

Of the final 25.6 percent of accounts with a zero balance in 2012, 19.7 percent were zero throughout the three periods (group 1), and 32.1 percent had a positive balance in 2000 and then zero in 2007 and 2012 (group 3). Combined, groups 1 and 3 represent 51.8 percent of zero-balance accounts in 2012, which means over half of those with a zero balance in 2012 had a zero balance in 2007. This implies that many of those zero accounts may have deleveraged prior to the onset of the recession in 2008.

Next, 8.5 percent of the zero-balance accounts in 2012 began with a zero balance in 2000, increased to some level of positive balance in 2007, and then reverted back to zero in 2012 (group 2).  The two remaining groups (4 and 5) had some form of positive debt in 2000 and 2007 and combined represent 39.8 percent of the zero-balance accounts in 2012. Groups 2, 4, and 5 all represent those with some form of positive balance in 2007 who had completely deleveraged themselves by 2012, after the recession occurred.