ATLANTA (Bloomberg) — Anita Bullock-Morley was $57,000 in debt on 27 credit cards and close to filing for bankruptcy in 2007. With help from an Atlanta counseling service, the 37-year- old says, she paid about $1,400 a month and cleared her balances. Now she’s used cash to buy an $800 iPad and upgrade her iPhone.

Three-plus years into a recovery from the worst financial crisis since the Great Depression, Americans finally are getting their finances back into shape, Federal Reserve figures show.

Household debt as a share of disposable income sank to 113 percent in the second quarter from a record high of 134 percent in 2007 before the recession hit. Debt payments on that basis are the smallest in almost 18 years, while the delinquency rate for credit cards is the lowest since the end of 2008.

“The household deleveraging process is largely over,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Penn. “Credit use should soon go from being a significant headwind to the economy to a tailwind.”

The progress that consumers have been making will allow gross domestic product to absorb stepped-up deficit reduction by the federal government next year and keep on expanding, Zandi said. He sees GDP growing 2.1 percent in 2013, a bit slower than this year’s projected
2.2 percent, as Congress allows some, but not all, of the scheduled year-end tax increases and spending cuts to go ahead. The GDP number will mask stronger growth for the private side of the economy, to 3.6 percent from 3.1 percent, he said.

In a sign of consumer resilience, retail sales rose 1.1 percent last month after advancing 1.2 percent in August, the biggest back-to-back monthly increase since late 2010, according to Commerce Department figures released today in Washington.

The improvement in consumption will lead to higher valuations for “riskier assets,” including U.S. and emerging- market stocks, said James Paulsen, chief investment strategist in Minneapolis for Wells Capital Management, which oversees about $325 billion.

“The financial sector is the biggest beneficiary,” Paulsen said, referring to the shares of banks, insurers and investment companies. Their valuations have been based “on a rear-view mirror looking at the past five years and not looking ahead.”

Automobile companies — and their shares — also stand to benefit as consumers become more willing to buy cars using credit, said Brian Johnson, a senior research analyst in Chicago for Barclays. He’s recommending investors overweight the stocks of General Motors and Ford their portfolios. The former’s shares have risen 21 percent so far this year, while the latter’s have fallen 6 percent.

The rebuilding of household balance sheets has been helped by a rise in asset prices, particularly equities. The Standard & Poor’s 500 Index has climbed 111 percent since hitting a nadir in March 2009. Home prices also are beginning to rise, jumping in the second quarter by the most in more than six years, according to the S&P/Case-Shiller index.

The result: Household net worth as a percentage of income rose to
527 percent in the second quarter from
477 percent in the first three months of 2009, at the height of the financial crisis, according to figures from the Fed. While that’s lower than the 652 percent peak hit in 2006, it’s higher than the 515 percent average that’s prevailed since 1980.

The Fed’s easy-money policy - keeping its benchmark federal funds rate near zero since December 2008 - also is helping Americans put their finances on firmer footing. Taking advantage of record low mortgage rates, many borrowers are refinancing into shorter-maturity loans so they can pay off their balances more quickly.

“People are opting for faster amortization,” said Mike Fratantoni, vice president of research and economics at the Mortgage Bankers Association in Washington.

With refinancing near a three-year high, he reckons that two in five home owners who went through the process in August cut the term of their debt.

The recent strength in housing and sales of cars and light- duty trucks suggests that Americans are becoming more comfortable with their finances, according to Wells Fargo’s Paulsen.

“We are seeing some big-ticket spending,” he said. “They are things you don’t see unless you are pretty confident of your balance sheet.”

The U.S. economy expanded “modestly” last month, supported by improvements in these two markets, according to the Fed’s Beige Book business survey released Tuesday.

Housing showed “widespread improvement since the last report,” according to the Fed, with all 12 of its districts reporting that “existing home sales strengthened, in some cases substantially.”

Foreclosure filings fell 16 percent in September from a year earlier to their lowest level since July 2007, according to RealtyTrac, the Irvine, Calif.-based online marketplace for foreclosure properties.

“Stronger housing increases the odds the economy improves” in the fourth quarter, Ed Hyman, chairman of New York-based International Strategy & Investment Group, and his team said in a Wednesday report to clients.

New-home starts will increase to 900,000 next year from 750,000 this year as potential buyers become more relaxed about taking on new debt, said David Crowe, chief economist at the National Association of Home Builders in Washington.

U.S. vehicle sales rose last month to a seasonally adjusted annualized rate of 14.9 million, the highest since March 2008, from 14.5 million in August, according to researcher Autodata in Woodcliff Lake, N.J.

Toyota led with the biggest gain in September, with sales surging 42 percent and topping the 36 percent average estimate of eight analysts surveyed by Bloomberg. Chrysler Group, majority owned by Fiat, and Honda also beat estimates.

Deliveries will increase to 15 million next year from 14.4 million in 2012, predicted Barclays’ Johnson.

Some economists, including Harvard professor Kenneth Rogoff and former Fed official Nathan Sheets, say the deleveraging process still has years to run. While debt as a share of income has fallen from its peak, the second quarter’s 113 percent was above the 94 percent average since 1980.

Sheets, global head of international economics at Citigroup in New York, said the ratio probably will fall over time to about 100 percent, noting this can occur without disrupting the economy.

Angela Sasseville, 37, a psychotherapist in Denver, said she and her husband are three years into a “financial turnaround plan” to pay off a five-figure credit-card debt.

“We’re not to the end of it yet,” said the mother of two. “Folks have to recognize that this is, for a lot of families, not a sprint, it’s a marathon.”

Still, they’ve made enough progress to be looking for a new, larger home. “That is something that we are actively planning for and excited about,” Sasseville said.

That’s good news for the economy next year - and for whoever gets elected president on Nov. 6.

“Private-sector deleveraging is well advanced,” said Peter Hooper, chief economist at Deutsche Bank Securities in New York and a former Fed official. The United States is “laying the foundation for a reasonably good expansion.”

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