American Personal Finances Get Passing Grade — Barely

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After four years of belt-tightening and freezing their credit cards, American families are getting passing grades for their personal finances. Now they are waiting for the national economy to do its part.

The favorable report card for families comes via the Consumer Distress Index, created by the credit counseling service CredAbility to measure household financial health. With a score of 70.5 (out of 100) for the third quarter, the index has stayed in positive territory for two consecutive quarters for the first time since 2008.

CredAbility mixes data on housing, consumer credit, household budgets, employment and net worth to score the average consumer's financial well-being. An index below 70 signals that consumers overall are in distress. Yesterday's score, at just a half-point over the distress mark, shows that Americans still have a long way to go before they are comfortable.

In addition, that third quarter score is down slightly from the previous quarter's 71.3. "In the third quarter we took a step back," said Mark Cole, executive vice president at CredAbility. "Employment went down a little, and the housing numbers dropped quite a bit," Cole said, thanks mostly to a rise in delinquency on mortgage payments and rents. (Read more: 401(k)s Come Roaring Back)

The step-forward, step-back movement of the index, Cole says, shows "the grinding process of getting out of our economic situation."

It may be, however, that individuals have done all the grinding they can.

Since the financial crisis hit, Americans have reduced their consumer debt, spend less on eating out, and stint on gas and groceries. The household budget component has been one of the strongest numbers in CredAbility's index since the middle of last year. "They've changed those habits they had control over," says Cole of consumers. "It's really a heartening reaction to a really difficult situation."

Having put their own houses in order, Americans are still feeling the drag of those macroeconomic forces that are out of their control. "Employment and housing have been the big drivers," says Cole, in how families are faring. (Read more: 'Rare Good News' on Retirement Savings)

The effect of housing and unemployment can be seen in the regional variations in the distress index. In Florida cities like Tampa and Orlando, where the housing market is still mired in foreclosures and low prices, the distress index has yet to break 60. (See chart.) In Washington, D.C., where real estate stayed relatively healthy through the crash, consumers have long been out of distress.

CredAbility's mix of data also details how, in the current phase of recovery, good news for one segment of the economy can pull down others. Improving home prices, for instance, can help homeowners who are trying to sell, but makes housing less affordable for those buying and renting.

The question is how long the average consumer will be able to hold the line while the larger economy waffles. Already the health of household budgets has begun to slide, as fuel prices eat into their margins at the pump and the grocery store. Says Cole, "It's not like you can choose not to go to work or not eat."