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Consumer credit card debt shrinks again in July

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Consumer credit card debt fell by more than $4 billion in July, a record 23rd straight monthly drop, according to the latest Federal Reserve data.

CONSUMER CREDIT CARD DEBT
CONTINUES TO FALL


Americans' credit card debt has fallen for a record 23 months. The chart above shows how much less credit card debt American consumers have than they did when revolving debt hit its peak of $973.6 billion in August 2008.

Note: Decrease is cumulative, and shown in billions of dollars.

The Federal Reserve's latest G.19 report released Wednesday showed that U.S. credit card balances fell 6.3 percent in July, deepening a record drop in revolving debt levels that started in September 2008. Overall consumer debt fell by 1.8 percent to $2.42 trillion. 

Changes in revolving credit, made up primarily of credit card balances, and nonrevolving debt, a category that includes auto loans, student loans and loans for mobile homes, boats and trailers, are both tracked by the G.19. In July, as revolving debt slid, nonrevolving debt actually increased by 0.6 percent.

Ongoing trouble in the U.S. economy is having an impact on credit card balances. Revolving debt levels dropped to $827.8 billion from $832.2 billion in June. At its peak in August 2008, U.S. credit card debt reached $973.6 billion. Since that time, consumer credit card debt had tumbled a total of $145.8 billion. That has amounted to substantially lower debt for the typical cardholder: The average U.S. household with credit card debt -- of which there are roughly 54 million, according to government data -- has eliminated roughly $2,700 in credit card debt during over that time frame, as consumers either repaid their lenders or had the debt charged off as uncollectable.

The report also included several substantial revisions to previously released data. For example, previous releases indicated a 10.2 percent drop in revolving credit in May of 2010. On Wednesday, the Fed announced the drop had been just 5.9 percent. 

Credit bureau data
The continuing decline in consumer credit is hardly surprising, as evidenced by recent data from the major credit bureaus, which maintain credit reports on the borrowing behavior of U.S. consumers. TransUnion reported on Aug. 25 that average credit card borrower debt declined by 4.1 percent to $4,951 in the second quarter -- the first in which credit card debt fell below $5,000 since 2002. "The last five quarters of consecutive decreases in credit card balances show that consumers continue to pay down their credit cards in response to economic uncertainty and high unemployment," Ezra Becker, director of consulting and strategy in TransUnion's financial services business unit, said in a press release.

Cardholders aren't just paying down existing debt, however -- they're also taking on less new debt. Experian found that U.S. consumers are opening 26 percent fewer credit cards than they were three years ago. Equifax, meanwhile, reported that the number of new bank cards -- and the lines of credit associated with those cards -- declined year-over-year in May, continuing a drop in credit lines that started in the third quarter of 2008. Equifax explained that fewer new cards are being given to consumers with prime credit, the same group of consumers that is most likely to pay down existing debt.

Credit gap
But that decline in fresh plastic doesn't mean cardholders have entirely lost their appetite for borrowing. According to research by leading credit score creator FICO, while the demand for credit should continue over the coming months, banks remain less willing to lend money to potential borrowers.

Research by FICO also showed the decline in new credit cards opened over the 12 months ending April 2010 far outpaced the drop in credit inquiries during the same period. That means while some consumers may want new credit, many just weren't able to get it.

See related: Credit card lending standards keep tightening, Fed report says, Poll: 2 out of 5 credit cardholders report getting whacked, Calculate the cost of just paying the minimum, Calculator: How long until my card balance is paid off?, Credit card rates: interactive graphic on APR changes

Published: September 8, 2010



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