It's been three years since the Great Recession formally ended in June 2009. However, you wouldn't know it from the way consumers are handling their credit cards. Instead of racking up debt the way they did before 2008, consumers are still furiously paying down their credit card balances, according to new data released Wednesday by the Federal Reserve Bank of New York, and, this time, they are paying them off on time.

The bank's quarterly report on household debt and credit, released August 29, showed that consumer credit card balances fell to their lowest levels in 10 years in the second quarter of 2012, while overall consumer credit tumbled by $53 billion. Late payments on credit cards also fell significantly, reaching their lowest levels since 2008.

Experts say that years of sluggish growth have taken a toll on consumers' willingness to take chances with higher interest loans. Although they may be willing to take on some debt when household items break down, consumers won't overextend themselves until they see stronger signs that the economy is actually improving at a healthy rate, say experts.

"As the economy continues to languish again and unemployment remains stubbornly above 8%, I think consumers continue to remain wary and cautious," says James Butkiewicz, a professor of economics at the University of Delaware.

For the past three years, consumers have watched as economic growth started out relatively strong early in the year and then petered out by spring, dashing hopes for a robust recovery each time. "We just can't seem to ignite a fire that really gets going. It always seems to die out," says Butkiewicz.

That, in turn, has made it hard for consumers to trust that their own household balance sheets really are secure. Consumers are worried about their job security and worried about their ability to pay their bills, explains Don Dutkowsky, a professor of economics in the Maxwell School of Citizenship and Public Affairs at Syracuse University.

The economic recovery is also still fragile, says Dutkowsky, which is discouraging to consumers. "When you're growing at a relatively slow pace, any of these headwinds, such as increased gas prices or the tsunami in Japan will just knock it down again," says Dutkowsky. "It's not a robust recovery in any sense." And that's bad news for consumer spending. "Consumers have to see a robust economy for them to really be confident enough to take on more debt," says Dutkowsky.

Revolving debt down, but nonrevolving debt still rising 

Consumers aren't holding on too tight to their wallets, though, especially when it comes to college tuition, cars and homeownership. The New York Fed's latest report, drawn from consumer credit reports, found that student loan debt increased substantially for the second quarter in a row, hitting $914 billion by the end of July 2012. Auto loans also increased by $13 billion in the second quarter of 2012, hitting $750 billion. Meanwhile, the amount of debt related to brand new mortgages rose to $463 billion.

Economists say that the substantial differences in growth between nonrevolving loans, such as student and auto loans, and  revolving loans, which are mostly made up of credit cards, underscores the fact that consumers will borrow when they must. However, they aren't going to overspend.

"I think consumers and households have made real attempts to pay off credit card debt for the obvious reason that credit card interest rates are so high," says Dutkowsky. Consumers will take out the loans they need to in order to buy a new car or to buy a durable good that's broken down, such as a washing machine. "But they're trying not to go overboard," he says.  

Inside the survey

Every quarter, the Federal Reserve Bank of New York analyzes approximately 40 million consumer credit reports and looks at how people are using credit.

Some of the highlights of this quarter's report include:

  • The number of credit account inquiries (credit checks by banks) decreased for the second quarter in a row, slipping 2% since April. The drop in demand corresponds with other Federal Reserve data, which found that consumers aren't as eager this year for new cards as they were the previous year.
  • Aggregate consumer debt fell by $53 billion, while consumer credit card debt fell by $7 billion. The total amount of debt that consumers are carrying on their cards is now at its lowest level since 2002.
  • The number of open credit card accounts fell slightly as well, to 383 million, after staying put the previous quarter.
  • Credit card limits also remained largely flat in the second quarter, falling by less than a percentage point.
  • Once more, a significantly larger number of consumers paid their bills on time, with credit card delinquencies falling by 10.9% in the second quarter of 2012. Credit card delinquencies are now at their lowest levels in nearly four years, according to Federal Reserve data.

Researchers at the Federal Reserve say that the second quarter's substantial drop in delinquencies was especially poignant as it shows consumers are getting a better handle on their finances. "The continuing decrease in delinquency rates suggests that consumers are managing their debts better," said Wilbert van Der Klaauw, vice president and economist at the New York Federal Reserve in a statement accompanying the report. "As they continue to pay down debt and take advantage of low interest rates, Americans are moving forward with rebalancing their household finances."

That said, delinquencies increased by 8.9% on student loans and by 4.9% on home equity lines of credit, underscoring the fact there are still many consumers in the U.S. who are struggling to pay their bills.

Neither banks nor consumers are courting each other heavily  

Consumers may not be flooding banks with new applications for credit cards, but banks aren't going after consumers as aggressively either, according to multiple reports.

For example, banks have substantially cut back on mailing credit card offers to consumers, according to new research from Mintel, reducing the number of offers they send by nearly half since the summer of 2011. They have also left the terms of their offers alone for much of 2012, according to CreditCards.com research. And they have continued to keep a tight rein on the amount of credit they're willing to dole out amid a tough economy, according to previous Federal Reserve research.  

Experts say that banks are still hungry for new customers -- but are focusing more on higher-end consumers. They are also cautious about the amount they are willing to spend courting new consumers and are unwilling to take on substantial risks.

"I think the banks are still feeling a lot of regulatory scrutiny," says the University of Delaware's James Butkiewicz. As a result, they are being cautious about the amount of credit they are willing to lend and are concentrating primarily on prime consumers that they know can pay their bills, he says. "Because of the crisis and because of the increased scrutiny, everyone is being cautious," adds Butkiewicz. "They don't want to take the risks they took before."