Consumer credit card debt grows for 1st time since 2008, Fed says
Consumer credit card debt has increased for the first time in more than two years, according to new data from the Federal Reserve, lifted by a surge in holiday spending.
|CONSUMER CREDIT CARD DEBT DECLINE FINALLY ENDS|
In December, consumer credit card debt grew by about $2.3 billion to $800.5 billion. That increase marks the end of a record run of 27 straight monthly declines in consumer credit card balances. The chart below graphs Americans' credit card debt totals from their peak of $973.6 billion in August of 2008 through the slight increase of December of 2010.
Revolving debt -- mostly made up of credit card balances -- rose $2.3 billion in December to $800.5 billion, according to the Federal Reserve's monthly G.19 consumer credit report which was released on Monday. That's only a modest 3.5 percent increase, but it represents a major change from the consumer debt trends of the past several years.
Credit card balances had been falling since September 2008, as the economic slowdown caused both banks and borrowers to worry about the dangers of shouldering too much debt. From its peak of $973.6 billion in August 2008 through November of 2010, consumer credit card debt fell $175.4 billion. But that trend finally reversed direction in December, as holiday shoppers went into stores with their credit cards in hand.
Overall debt grew as well, growing about $6 billion to $2.41 trillion -- a 3 percent increase. That number includes revolving credit as well as nonrevolving debt, made up of such debt as auto loans, student loans and loans for mobile homes, boats and trailers. Nonrevolving debt grew by 2.8 percent to $1.6 trillion.
The holiday season may have eased consumers' debt fears -- at least temporarily. Consumer spending rose 4.4 percent in the final three months of 2010, for the largest increase since 2006. That helped retailers enjoy the best Christmas sales in recent years. "In spite of weakness in employment and rising gas prices, consumers showed they still have spending power which helped retailers when it counted most," said Matthew Shay, president and chief executive of the National Retail Federation trade association, in a press release.
It's "likely that the uptick in Christmas spending in 2010 was fueled by increased credit card spending," says Tony Plath, professor of finance at the University of North Carolina at Charlotte.
Banks were also more willing to lend as the economy continued to recover. The Fed's most recent survey of bank executives showed that lenders made it easier for card applicants to get new plastic in the final three months of 2010.
Credit card issuers appear more confident that if they lend money, they will get repaid: Banks are seeing fewer losses from cardholders who are unable (or unwilling) to pay bills. Moody's Investors Service said charge-offs -- the unpaid loans that banks give up on collecting -- fell for a fourth straight month in December, while late payments dropped to their lowest level in more than three years. Some of that may be due to an improving job market, with the unemployment rate falling to 9 percent in January.
Now that card balances have increased, experts say it will take several months before the numbers show whether cardholders resume efforts to pay off their debt.
"People don't want to be beholden to the banks," says Linda Sherry, national priorities director for advocacy group Consumer Action.
See related: Banks continue to ease lending standards, Fed survey shows, Credit card reform law and you, Calculate the cost of just paying the minimum, Credit card lending standards loosen for 1st time in 3 years, Credit card rates: interactive graphic on APR changes
Published: February 7, 2011
- Poll: You can get better credit card terms just by asking – If you want better credit card terms, the best thing to do is call your card company and ask, a new CreditCards.com survey shows ...
- Applications dip, credit market shows signs of cooling off – The market for consumer loans, including credit cards, pulled back in a February survey of consumers ...
- Online and mobile banking statistics – Bank branches aren't a thing of the past yet, but that could be the way they're headed now that consumers can deposit checks, check balances and even open accounts via computer or smartphone ...