Americans pay down debt

Since the financial crisis, U.S. households have reduced their outstanding debt by about $1.3 trillion, reports the New York Federal Reserve Bank.

Read: Boomers risk straining finances to support adult children

This includes a reduction in mortgages and credit card debt. In fact, credit card debt fell $1.7 billion to $846 billion from February to March. That’s 17.2% below the peak of $1.022 trillion set in July 2008, says the Federal Reserve.

Meanwhile, student loan debt has been the biggest driver of borrowing since the recession. Student loans reached $966 billion in last year’s fourth quarter. That’s up from $675 billion in the second quarter of 2009.

Read: It may be too late to defuse the debt bomb

Consumers increased their spending from January through March at the fastest pace in more than two years. However, they had to trim the pace of their savings to finance the faster spending. Their after-tax income dropped by the largest amount since the final three months of the recession in 2009. Part of the drop in after-tax income reflected the increase in Social Security taxes that took effect on January 1.

Read: U.S. to pay down debt

A person earning $50,000 a year will have about $1,000 less to spend this year. A household with two highly paid workers will have up to $4,500 less.

Solid hiring could offset some of the drag from the tax increase. The economy added 165,000 jobs in April and hiring in the two previous months was better than previously reported. That helped drive the unemployment rate down to a four-year low of 7.5% in April.

Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.