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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 5, 2012

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According to the American Bankers Association (ABA), borrowers have made improvements in paying off personal loans and other debt in the first quarter of 2012.

Borrower delinquencies fell in 10 of the 11 debt categories that are tracked by the ABA, which range from personal loans and bank cards to direct auto loans and home equity lines of credits (HELOCs).

The ABA considers a late payment that is 30 days or more overdue to be a delinquency.

Chief economist for the ABA, James Chessen, believes the first quarter of 2012 was a strong improvement over past quarters but does not believe the gains will continue to be so strong.

“We’ve moved back to historical norms now and further improvement could be hard to achieve. The economy has slowed recently and uncertainty remains high. This means banks will continue their prudent approach to extending new consumer credit as high unemployment levels are still creating loan losses,” Chessen said in a press release. “However, continued growth in jobs, moderating gas prices, and steady growth in personal income all will help consumers build a strong financial base.”

The first quarter also saw bank card delinquencies in the first quarter fall from 3.17 percent to 3.08 percent. Delinquencies on personal loans fell from 2.87 percent to 2.01 percent. Direct auto loan delinquencies fell from 1.06 percent to 0.86 percent.

Only HELOCs saw a rise in delinquencies. The delinquency rate for HELOCs rose to 1.78 percent from a low of 1.69 percent the prior quarter. The ABA attributes this to the sluggish recovery in the housing sector.

“It will be many quarters before delinquencies on home equity loans get back to anything close to normal,” Chessen said.

The ABA considers the increased personal loans repayment trend very encouraging, especially considering that delinquencies fell in nearly every other category. Delinquencies also fell just prior to 2012, but in all 11 categories.

“This is another strong quarter of improving delinquencies. Consumers have done a remarkable job getting their finances under control,” Chessen said. “Improvement was all the more remarkable when you consider that gas prices rose 66 cents a gallon in the first quarter alone. That’s a significant amount of money that was diverted from other uses, including paying off debt.”

Chessen believes borrowers should feel positive about the first quarter trend of personal loans and debt repayment.

“Overall debt levels have declined dramatically and savings continue to grow. This means many consumers have more capacity to absorb a financial shock, and that’s a good place to be,” he said.