The grapevine is now abuzz about the impending increase in the interest rate. With the sluggish pace of the economy, some experts are now looking at how fast consumers are now paying down their personal loans including credit card debts and payday loans. The rule of thumb is that debt levels normally go down as savings rate goes up. Now, are we really seeing substantial decline in the debt levels amid this economic slowdown and rise in interest rates?

The truth of the matter is that the evaluation of the situation is not a straightforward undertaking. There are other critical parameters that need to be taken into account in order for us to properly assess whether personal loans are really on the decline or not. For instance, we have to account for the charge-off component. This data refers to the bad debt portion which are already written off and no longer reflected in the books but remain to be a liability of consumers. If we include charge-offs in the equation, then we can see that total consumer debt has actually risen.

In real terms, the report that consumer credit only increased during the 4th quarter of last year for the first time after a couple of years may not be entirely accurate. In truth and in fact, the numbers have actually been increasing for several quarters before the close of the 4th quarter of 2010. Nonetheless, we need to look at the spending levels of consumers if we want to get a clear picture of the prevailing levels of payday loans and other short term loans of consumers. Indeed, consumers have shifted to spending mode and are now incurring more debts now than in the past.

Experts believe that there is now the pervading frugal fatigue among consumers and there is now an increase in personal consumption. This means that more and more people are regaining their confidence in using their plastics. Perhaps, another important factor that is now pushing the numbers up is the lack of charge-offs.

With fewer charge-offs, we can safely assume that there are now lesser variables that can skew the measure of the current debt levels. And with the decrease in the number of personal debts, we can surmise that consumers are now in a better position to pay off their bills. This means that consumers are now incurring lesser defaults in their monthly bills payment as well as in their credit payments.

Of course, this does not necessarily mean that consumers can now go back on a spending spree. We have to stick to our present objective of cutting down our debt balance. Credit card companies are poised to implement a new round of increase in their annual fees. Once the economy starts to pick up, there is a strong possibility that interest rates will also go up.