WASHINGTON (MarketWatch) — The total amount of debt held by Americans fell again in the first three months of the year and stood at the lowest level since the middle of 2006, the New York Federal Reserve said Tuesday.

The steady retreat in household debt is a good sign for the economy. With fewer loans to pay off, Americans are in a better position to spend and drive U.S. growth higher, especially if they become more confident about the future. Many economists have cited weak household finances as a chief cause of the slow U.S. recovery nearly four years after the Great Recession ended.

The level of household debt in the first quarter fell by $110 billion, or 1%, to $11.23 trillion, mainly because consumers reduced mortgage balances and used their credit cards less.

Household debt is now 11.4% lower versus a peak of $12.68 trillion in 2008.

Mortgage debt slid to $7.93 trillion from $8.03 trillion to mark the lowest amount since late 2006. Mortgage debt fell in the first quarter even though more home loans were issued than in the last three months of 2012.

Lower interest rates have allowed many homeowners to refinance their mortgages and sharply reduce their monthly payments. A high, though falling, level of foreclosures also contributed to the decline in mortgage debt.

Credit card debt, meanwhile, fell 2.8% to $66 billion, as fewer people applied for new cards.

The value of auto and student loans rose, however.

The increase in the value of auto loans was the smallest in four quarters, suggesting that car companies might have cut prices to attract buyers as demand for new vehicles slackened. Still, auto loans rose $11 billion to $794 billion to mark the ninth straight quarterly gain.

Student loans, which climbed $20 billion in the first quarter, have surged 46% since the end of the recession to an all-time high of $986 billion. More students are going to college or remaining in school longer to obtain graduate degrees to improve their chances of finding a job amid a slow economic recovery.

Yet the escalation in student loans is also leaving many young people saddled with large debts. Although the delinquency rate on student loans fell slightly in the first quarter to 11.19%, that’s still the second highest rate ever. Before the recession, delinquencies averaged around 7%.

The percentage of loans of all types being paid off on time rose to 91.9%, the highest rate since the second quarter of 2008. The steady increase reflects the gradual if slow improvement in the U.S. economy.

Loans that are “severely derogatory,” or likely to go unpaid, fell a tick to 2.7% and touched the lowest level since the third quarter of 2008.

Overall, some 8.1% of U.S. household debt was delinquent, down from 8.6% in the prior quarter.

About 309,000 consumers went through the bankruptcy process in the first three months of 2013, but that’s down almost 17% from a year earlier and marked the ninth straight decline.

Home foreclosures fell 12.5% from the prior quarter to 184,000. Four years ago, a modern record of 566,000 foreclosures were filed in the final stages of the Great Recession.