From our mostly good news department: Fewer Americans are
carrying onerous balances on their credit cards, most are paying
less interest on those debts and many are working harder not to
carry from month to month any credit card balances at all.
A statistical report issued Thursday by the American Bankers
Association strongly demonstrated that U.S. credit card holders
learned a few valuable lessons from the Great Recession, though
they still have some work to do.
"The fact that credit card debt has declined is a welcome
development," said Melinda Opperman, senior vice president of
Consumer Credit Management
, a nationwide credit counseling and financial education
organization. "But there are some things we should consider before
we celebrate too much."
Among them, she said, is the diminished availability of
card-related credit, a consequence of higher credit score hurdles
and other qualification standards now imposed by card issuers.
"This is troublesome, because access to credit is an important
driver of mobility," Opperman said. "We try to teach people to use
credit responsibly, but we don't want them to avoid using credit
"Using credit well builds one's credit rating, which helps gain
access to housing, loans, employment and more," she said. "If the
recession has led to fewer people gaining access to credit, then
some people won't have the opportunity to establish a credit
history and work their way up through the middle class."
David Jones, president of the Association of Independent
Consumer Credit Counseling Agencies, cited the widely shared pain
of the recession as a leading factor in our newfound discipline
when it comes to credit cards.
"This conservative trend in credit card usage appears to be the
result of a shift in consumer thinking primarily based on the drop
in home values," Jones said.
"In the past, homes could be counted upon for value appreciation
and, therefore, a source for ready loans," he said. "No more, at
least for the foreseeable future. Without that backstop, consumers
have quit the trend of reckless spending we have seen for
So it would seem. The ABA's inaugural edition of its
Credit Card Market Monitor
Outstanding credit card debt has declined.
That's true for credit card debt more than that of any other
major form of credit during the past five years. Business loans
and auto loans have rebounded since the depths of the recession,
but mortgage debt is still down 16 percent and credit card debt
remains down by an impressive 22 percent. As a percentage of the
nation's disposable income, outstanding credit card debt has
fallen from more than 8 percent in 2003 and nearly 8 percent
during the depths of the recession to less than 6 percent in the
second quarter of 2013. Further, as a share of the nation's Gross
Domestic Product, an important measure, credit card debt stands
at 4 percent -- a 10-year low.
Monthly balances have fallen.
The average ending monthly balance for all three risk categories
of credit card holders -- subprime customers, prime customers and
super-prime customers -- has fallen at least slightly from the
highs endured during the recession. At the same time, however,
subprime and prime customers still are carrying average balances
of $2,500 or more. Those who have the best credit use it least:
Super-prime cardholders are carrying average balances of nearly
That means that many credit card customers are still hurting.
"Our agency still counsels thousands of people looking for relief
from high balances and interest rates," said Christopher Viale,
president and chief executive officer of Cambridge Credit
Counseling in Massachusetts. "During the past two years, however,
we've also noticed that the majority of people who only need
budgeting help or other assistance outside a debt management plan
have lower interest rates and credit card balances. I think this
is a natural consequence of the recession."
Interest as a percent of outstanding credit card balances
In 2010, interest accounted for more than 13 percent of the
nation's credit card debt. By the beginning of 2013, that was
down to 11.25 percent.
Experts attributed that to several factors, including tighter
application requirements imposed by credit card companies. That
reduces the credit card companies' risk, and finance rates can
decline. "A change in consumer behavior, coupled with shifts in
the risk profile of bank portfolios, mean that the effective cost
of credit card credit for consumers is falling," Kenneth J.
Clayton, executive director of the ABA's Card Policy Council,
said in a statement that accompanied the report.
But the reality of lower interest rates also provides more
evidence that some Americans are having more trouble qualifying
for the credit that they legitimately need. "It indicates that
there are fewer accounts with high interest rates," Opperman
said. "While high interest rates aren't a great thing, they're
usually associated with accounts held by new consumers and those
working to rebuild their credit rating. These are the very people
who need access to credit so they can prove they're ready for
homeownership, auto loans, etc."
Average interest rates on debt fell.
Between the beginning of 2010 and the beginning of 2013,
the average interest rate on credit card debt fell from nearly 14
percent to about 11.8 percent.
On the other hand, credit card interest rates remain relatively
high when compared to other forms of credit, and the annual rates
on these other forms of debt have fallen by much larger margins.
For instance, over that same four-year period, auto loans were
down by 32 percent, mortgages by 31 percent and business loans by
A virtuous cycle
Together, the findings paint the picture of a virtuous cycle:
People are paying off their credit card debts faster than in the
past and more people are no longer carrying over credit card debt
from month to month to month. Not carrying debt means they're
not suffering finance charges or dings to their credit scores
-- which lets them continue paying off their debts faster.
The percentage of credit card users who pay off their full
balances every month -- a group called "transactors" -- has been
inching up almost from the start of the recession. Together,
transactors and credit card holders with dormant accounts now
account for nearly 60 percent of all U.S. credit card customers.
That is another strong indication that the recession has left a
lasting mark on, and produced a valuable lesson for, American
credit card holders. On the surface, this seems like wonderful
news, but there could be a hidden cost.
"Lower balances could indicate fewer discretionary purchases,
which means lower economic activity, and the recovery from the
recession is slower," Opperman said. "It's great if people are
eschewing credit for day-to-day spending, but if they're not
spending at all, our whole economic slump will continue ..."
"Whatever its effect on the larger economy, these trends are
good for individual credit card holders," she said. "If consumer
spending rebounds fully without increased credit card borrowing,
then this will be a great turning point for American
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