NEW YORK ( TheStreet) -- The employment picture is improving, consumer confidence is up, home prices have started to recover, and interest rates are at all-time lows. It sounds like a great time to borrow money. Quite the opposite: Consumer debt levels are falling. Is it possible Americans have become too conservative about debt? "Across the country, consumers remain cautious about taking on new debt," Equifax ( EFX), the credit-data firm, reported Thursday. "Overall consumer debt levels fell $256 billion in the third quarter versus the same period a year ago." That is a 2.28% decline in debt over the 12-month period. Equifax notes that the decline is the smallest since the second quarter of 2009, suggesting that consumers may be feeling a bit less cautious than in recent years. Still, Americans' eagerness to borrow is so entrenched that the conservative behavior is curious given the economic improvements of the past year. Not that we're giving up on debt. "U.S. consumers currently owe $11 trillion across all types of debt, with mortgage debt accounting for a little more than three-quarters of that amount," Equifax said. "Mortgage debt fell 3.4% in the third quarter, compared to the same period a year ago. Non-mortgage consumer debt actually increased 0.7%." The biggest decline in debt is found, as one would expect, in the regions hit hardest by the financial crisis and housing collapse -- California, Florida, Nevada and Arizona. On the other hand, consumers are taking on debt to buy cars, with auto-loan debt increasing 7.1% over the 12-month period. That's probably a combination of improving consumer confidence and necessity, as drivers who delayed purchases in the wake of the recession find they must replace vehicles that are getting old.
Since mortgages account for the lion's share of consumer debt, it's easy to understand why mortgage lending remains subdued. Millions of homeowners owe more on their current mortgage than their homes are worth, making it next to impossible to get a new mortgage to refinance or move. And lenders remain conservative, so many people who do want a new loan can't get one. Some of the borrowing pullback is undoubtedly due to lessons learned by borrowers who found themselves in too deep when the economy collapsed. But then there's that nagging question of whether some consumers have become too conservative. Anyone who would like a new mortgage and can qualify but holds off because of jitters might later regret missing out on today's stunningly low rates. We might never see deals like this again: The average 30-year fixed-rate mortgage charges just 3.59%. Prospective borrowers sitting on the fence should consider two questions. First, will you be able to keep up with loan payments? That clearly depends on how reliable your income is, and how well you could weather a setback such as a big medical bill or home-repair expense. Second, will the loan create value over the long term? Borrowing to buy a home may well pay off if your home grows in value over time. Owning is generally better financially than renting, assuming you don't buy more home than you need. Similarly, it can pay to borrow to pay for a college education -- your own or a child's - because people with degrees have more opportunities and earn more. Borrowing to buy a car you need to get to work can make sense, though a good used car might be a cheaper option. "Bad" loans are for things that don't produce long-term value, such as credit card debt for nights on the town or extravagant vacations. Of course, borrowing makes more sense when the interest rate is lower. Today, that means there's a strong case for taking out a mortgage, and perhaps a car loan or home-equity loan. Taking on double-digit credit card debt is not a good idea unless you can pay it off quickly, or simply have no alternative in a crisis.