Research and Statistics

Consumer credit card debt drops slightly in April

Consumer credit card balances fell in April, according to new data from the Federal Reserve, as Americans remained hesitant to carry excess debt.

Consumer credit card debt fell by $1 billion in April after a rare — albeit slight — increase of 0.1 percent in March. The chart below graphs Americans’ credit card debt totals from their peak of $973.6 billion in August 2008 through April 2011, when debt stood at $790.1 billion.

The Federal Reserve‘s latest G.19 consumer credit report showed declines in U.S. revolving debt levels, a measure of debt that is mostly made up of credit card balances. Revolving debt fell $1 billion in April to $790.1 billion. Credit card balances have been largely dropping for over two years, with two recent monthly gains the rare exceptions to the ongoing slide.

“People just don’t want to have the debt anymore. They’re spending cautiously. They just don’t want to go back to 2006 again,” says Susan Menke, behavioral economist for Mintel Comperemedia, which tracks direct marketing offers.

The Fed’s monthly G.19 consumer credit report also considers nonrevolving debt, a category that includes auto loans, student loans and loans for mobile homes, boats and trailers. Overall consumer credit — the combination of both revolving and nonrevolving — went up 3.1 percent to $2.4 trillion in April. It’s the seventh straight month that overall consumer debt has increased, the longest such streak since 2008.

Nonrevolving debt went up 5.3 percent to $1.6 trillion.

Downward trend
The latest data extends an ongoing drop in revolving debts. Between September 2008 — when consumer credit card balances hit a peak of $973.6 billion — and April 2011, credit card holders shed $183 billion in revolving debt.  

That pullback, however, followed a period in the first half of the 2000s when credit was free and easy — a little too free and easy, some experts say. “A lot of the lenders were giving credit cards away for free to anyone. In a way it was unsustainable,” says Nathaniel Karp, chief U.S. economist with BBVA Compass. 

Then the recession hit. Banks reined in customers’ existing lines of credit, limited the opening of any new accounts and charged off delinquent debt they had no hope of collecting. Borrowers, meanwhile, slashed their existing debt and avoided paying for any new expenses on credit.

Karp says that process of reducing debts — or deleveraging — was necessary.  “It’s welcome if you want a sustainable recovery,” he says. 

Balances under pressure
Some experts, however, say that credit card issuers remain unwilling to lend to most consumers. “All the banks want the same thing: pristine credit. That’s the only way they’re going to” lend, says research analyst Keith Davis of Farr, Miller & Washington. 

The recession has been damaging for borrowers’ credit histories. “Unemployment and declines in wealth obviously can make it difficult for a household to pay its debts on time,” Fed Chairman Ben Bernanke said in a speech in late April. (In the latest jobs data release, the U.S. unemployment increased to 9.1 percent in May.) He noted that Fed data shows poor Americans have been especially hard-hit, since “lower-income households fell behind on their payments at a substantially higher rate than higher-income households,” Bernanke said.

That poses a challenge for borrowers. “Unfortunately, [people with perfect credit] don’t need the money,” Davis says. “The people that need the money can’t get the credit — and I think that situation is going to continue.”

“As with everything else in the economy, the rich are getting richer,” he says.   

See related:Fed says credit cards easier to get, but does anyone want one?

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