This is good and bad. At the level of the individual, it is great to be reducing debt. It means the person gets control back over their own life. It means that when interest rates start rising in a year or two, they will be safe from the demands of their creditors. At the level of the society, this is a tragedy because the lack of consumer demand is what is making this into a Great Recession! People need to be spending to fuel economic growth.
This paradox is the reason why government needs to step in a be the "consumer of last resource". Just like having the US government, via FDIC, act as a banker of last resort to guarantee against a run on a bank. The US government needs to step in and sustain consumption to prevent the waste of having 14 million people unemployed, idling, wasting their time, not producing goods, etc. Unfortunately, the The Party of No & Nothing (AKA "Republicans") are intent on ensuring that a bad recession will go down in history as a Great Recession by blocking attempts at saving the situation by providing more stimulus or providing any programs (other than tax cuts to billionaires!) that would help sustain consumption. Sad.
One final graph... this shows how debt per capita ballooned from 1999 to 2008 and is now starting to come down. Again this is wonderful for the individual, but this is why the "recovery" may take a decade and the US will have a "lost decade" like Japan:
Let's hope this Great Recession doesn't drag out for a decade like the Great Depression or Japan's "Lost Decade". But the signs are not good. And the Republican Party is doing everything possible to make it last a decade and Obama is stumbling around in the dark and may "succeed" in making it last a decade because he isn't decisive enough and has as his economic advisors the same crew that created the problem! Specifically: Larry Summers, Ben Bernanke, and Timothy Geithner.