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Credit card balances continue free fall in February

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Credit card balances declined in February as a troubled job market continued to hold back spending.

HOW MUCH CREDIT CARD DEBT
HAVE AMERICANS SHED?

Americans' credit card debt has fallen by almost $118 billion from its September 2008 total of $975.7 billion -- including a drop of about $9.5 billion in February.

The chart below shows how steadily consumers have pecked away at that debt -- or had it charged off. That's an average of $2,178 eliminated per household with credit card debt.

The Fed's monthly G.19 consumer credit report, released Wednesday, showed that overall consumer debt fell 5.6 percent to $2.448 trillion in February. In addition, consumer credit card balances fell 13.1 percent in February, as U.S. consumers erased nearly $9.5 billion in debt. The latest drop in card balances marks the 16th decline in 17 months -- and save for an upward revision in the January figures, it would have been 17 straight. 

The consumer credit report includes a broad variety of consumer debt, including revolving credit -- a loan category comprised almost entirely of credit card debt -- as well as nonrevolving debt, which includes such debt as auto loans, student loans and loans for mobile homes, boats and trailers.

Card balances remain under pressure. The revolving debt component fell to $858.1 billion from $867.6 billion in January. U.S. credit card debt stood at $975.7 billion in September 2008, representing a plunge of $117.6 billion up through the latest data. That means the average U.S. household with credit card debt -- of which there are roughly 54 million, according to government data -- has eliminated roughly $2,178 in credit card debt during that period, as borrowers either paid down debt or had it charged off as uncollectable.

"Consumershave been actively trying to slim down their budgets and take on lessdebt," says James Chessen, chief economist with the American Bankers Association banking trade group. 

Job woes
In part, that's due to ongoing job woes. According to the latest data from the Labor Department, unemployment remained at 9.7 percent in March, the third straight month at that elevated level. In a speech Wednesday, Fed Chairman Ben Bernanke emphasized that despite signs of economic recovery, "we are far from being out of the woods. Many Americans are still grappling with unemployment or foreclosure, or both," Bernanke said.

Those struggles appear to have prompted a shift in consumers' attitudes toward debt, as evidenced by the latest G.19 data. "These numbers show that in the weak economy, consumersdon't feel confident enough to borrow to make their purchases," Chessen says. 

That may not be a bad thing, however. "From my standpoint, I think it's very positive thatconsumers are building a base that helps them weather poor economic times," Chessen says. "They'reless vulnerable today because they've reduced their debt levels and put awaysavings."

There are signs, however, that consumers are tentatively dusting off their plastic. The January revolving credit numbers were revised to show an uptick in card balances at the start of 2010, while the latest data from MasterCard Advisor's SpendingPulse indicated that retail sales rose in March.

So what happened in between? "February was a hellacious month in terms of weatherfor the East Coast and down to the south," says CraigThomas, senior economist with PNC Financial Services Group of Pittsburgh. That nasty weather may have kept shoppers indoors. "Now that you see consumers returning to the stores,you would expect to see the credit card balances begin to rise," Thomas says. 

"The only thing that would keep it down is an aversionto credit cards in favor of debit cards," Thomas says. 

With consumer spending gaining 0.3 percent in February as personal incomes remained unchanged, consumers certainly appear to be tapping into their bank accounts -- rather than lines of credit -- to make purchases. Until unemployment declines, some experts believe debt fears will continue to limit credit card use. 

That means the revolving credit numbers aren't likely to post a sustained recovery just yet. "I don't think we'll see much stability until the jobcreation numbers start to improve," Chessen says.  

See related: Calculate the cost of just paying the minimum, Calculator: How long until my card balance is paid off?, A guide to the Credit CARD Act of 2009, Lending standards show signs of easing

Updated: April 12, 2010


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