When there is a dollar of debt for every dollar of income, paying down 10% of the debt takes 10% of the income.
When there is $10 of debt for every dollar of income, paying down 10% of the debt takes all of the income.
I've seen graphs of debt repayment as a percent of disposable income. Never saw anything on the amount of debt repaid as a percent of debt outstanding.
We can look at debt service to see how much debt we pay off each year, and then compare "debt paid off" to "debt outstanding" to see the relation between these two.
|Graph #1: Three Measures of Debt Service out of Disposable Personal Income|
|Graph #2: "Consumer" + "Mortgage" Debt Service Payments as % of DPI (red, dashed)|
overlaid on "Household" Debt Service Payments as a Percent of DPI (blue)
So anyway, I'll use the total, the "household" debt service number.
I should be able to get household debt service in dollars -- or, billions -- by undoing the "Percent of DPI" calculation.
If I was figuring debt service as a percent of disposable personal income, I'd divide debt service by disposable personal income (DPI) and multiply by 100. To undo the calculation and get the debt service number back, I'd divide by 100 and multiply by DPI. Now I know how to get "household debt service" from FRED's household debt service ratio -- divide by 100 and multiply by DPI.
|Graph #3: Household Debt Service Payments, in Billions|
For DPI I used FRED's DSPI
Now we can look at household debt service payments, the number from Graph #3, as a percent of household debt:
|Graph #4: Household Debt Service Payments as a Percent of Household Debt|
For "Household Debt" I used FRED's CMDEBT
Wellsir, it seems we're paying down debt even slower now than before the crisis. That can't be good.
Notice the flat spot there, in the latter 1990s when the economy was doing good.
I wonder what this ratio looked like before 1980.