So is this good or bad overall? Because people are giving money to banks, rather than spending it, it should be raising bank's capital. Right? So the Fed won't need to give as much money to the banks, because people are giving it to them to pay down their debt?

OTOH, if people aren't spending, then unemployment goes up, which is bad.

Unless people aren't paying down their debts, but rather going bankrupt and the banks are writing them off. Then we're in trouble.