Research and Statistics

Consumer credit card balances plummet in April


Consumer credit card balances plummeted by $8.5 billion in April, marking a record 19th straight month of decline, according to data released Monday by the Federal Reserve.

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Consumer credit card balances plummeted by $8.5 billion in April, marking a record 19th straight month of decline, according to data released Monday by the Federal Reserve.

Federal ReserveThe Fed’s monthly G.19 consumer credit report showed that consumer credit card balances fell 12 percent, continuing a streak that began in October 2008. While credit card debt continues to drop, overall consumer debt grew 0.5 percent to $2.440 trillion in April. Monday’s report showed a sharp divergence between credit card debt and other types of debt. The former fell sharply, the latter shot up 7 percent (see chart).

The Fed report considers more than just card balances: In addition to revolving credit — a loan category consisting almost entirely of credit card debt — the report also looks at nonrevolving debt, a category that includes such debt as auto loans, student loans and loans for mobile homes, boats and trailers.

Amid signs the economy continues to struggle, credit card balances keep falling. The revolving debt component fell to $838 billion from $846.5 billion in March. At its peak in September 2008, U.S. credit card debt stood at $975.7 billion. It has plunged a total of $137.7 billion since then. 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 $2,550 in credit card debt during that period, as borrowers either paid down debt or had it charged off as uncollectable.

Some analysts don’t expect card balances to rise again in the near future. “The outstanding value of credit card balances has been falling since mid-2008, and we don’t expect that trend to end any time soon, not when credit card defaults are still rising sharply,” says Paul Ashworth, senior U.S. economist with Capital Economics Ltd.

Unemployment an ongoing challenge
Those defaults are increasing as cardholders struggle to repay their debts. The latest data from Fitch Ratings showed that charge-off rates — or the percentage of card balances banks have given up on collecting — rose to 11.1 percent in May from 10.93 percent in April, amid lingering weakness in the jobs market and higher personal bankruptcy filings. Although the unemployment rate fell to 9.7 percent in May from 9.9 percent in April, nearly all of the improvement came from hiring of temporary census workers. Those jobs will mostly end in a few months.

As banks abandon their efforts to recoup some unpaid debts, revolving debt as a whole continues to fall. “Charge-off rates have been holding steady at over 10 percent for a full year now, so the pressure on U.S. consumer credit quality is still clearly evident,” said Fitch managing director Michael Dean in a press release.

Drop till they shop
But it’s not only consumers’ inability to pay that is sending card balances south, experts say.

According to Florida State University finance professor Jeffrey A. Clark, cardholders are both choosing and being forced to use less credit. Amid an economy that hasn’t provided significant increases in work hours or new jobs, “consumers are both unwilling and unable to increase their credit card debt,” Clark says. He adds that banks have been relatively cautious about providing credit lines to borrowers. “As a result, credit limits on existing accounts remain lowered, and fewer new accounts are being approved,” Clark says.

That viewpoint is supported by other data: The Fed’s latest quarterly survey of senior loan officers showed that banks tightened their lending standards on both consumer and small business credit cards in the first three months of 2010. Additionally, research showed that about four in 10 U.S. consumers had some negative action taken against them by their card issuer.

Against that backdrop, Clark doesn’t foresee an economic rebound anytime soon. “With interest rates at historic lows, fiscal policy apparently hamstrung by Washington politics, continuing budget crises facing state and local governments” and continued consumer efforts to reduce their spending and pay down debts, “it is difficult to imagine anything resembling a robust recovery in the near term,” Clark says.


Over the past 10 years (left), credit card debt and other types of consumer borrowing trended along the same path — rising steadily, until falling with the recession’s arrival. But in the past few months, the lines have diverged (right), with card debt continuing to plunge, but other types of borrowing back on the rise.

See related: Credit card lending standards keep tightening, Fed report says,
Poll: 2 out of 5 credit cardholders report getting whacked, Federal Reserve leaves interest rates unchanged again, 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

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