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In the face of continuing economic uncertainty, consumers continue to scale back credit card debt. On Monday, the Federal Reserve released data that showed credit card balances dropped an impressive $8.5 billion during the month of April—the 19th month in an unprecedented stretch of declining credit card debt.
The $8.5 billion drop marks a 12 percent decrease in consumers’ $838 billion debt load, down from $864 billion in March. Since credit card debt’s peak at $975.7 billion in September of 2008, cardholders have managed to chip away an impressive total $137.7 billion from their balances—an average of $2,550 per household.
At the same time, other types of debt crept upwards in April. Non-revolving debt, such as auto and student loans, made a 7 percent comeback, pushing overall consumer debt up 0.5 percent to $2.440 trillion. However, the increase in non-revolving credit may in part be spurred by a series of attractive purchase incentives launched by leading U.S. automakers in an effort to woe back customers.
The ongoing decline in credit card debt is not just a result of consumers paying off their debt faster, it also has its root in high credit card default rates. Default rates reveal the number of credit card balances consumers were unable to pay off, to the point where the issuer gave up on ever collecting the debt. Due to persistent unemployment and an increase in personal bankruptcy filings, default rates continue their unusual high, increasingly slightly from 10.93 percent in April to 11.1 percent in May.
However, credit card defaults are not the only factor in the decline of consumers’ revolving credit: greater financial concern and lack of secure employment has left cardholders more cautious than ever to add to their credit card balances. Furthermore, according to a recent quarterly survey of banks and other credit card issuers by the Fed, banks have tightened lending standards across the board. The combination of continuing uncertainties in the lending environment along with the tighter regulations introduced by the Credit CARD Act of 2009 have caused card issuers to both curtail existing credit lines and scale back the number of new credit cards issued.
Experts predict that credit card debt will continue to decline in the coming months, hopefully eventually resulting in a more solid economic foundation for most consumers.
