Consumer credit card balances plunge more than $8 billion

Drop marks the record 25th straight monthly decline

Consumer credit card debt levels plummeted more than $8 billion in September, according to the Federal Reserve's latest G.19 consumer credit report, marking a 25th straight month of decline. But experts say even a weak economic recovery could soon cause consumers to pull their credit cards from their wallets once again.


In September, consumers' credit card debt plunged by more than 12 percent -- or more than $8 billion. It was the 25th straight monthly decline in consumer credit card balances. The above chart tracks the total decline in credit card debt since balances hit their peak in August of 2008.

For now, however, with the economy still struggling to right itself following the recession, credit card balances keep falling. In September, the revolving debt portion of the Fed's data -- made up almost entirely of credit card balances -- plunged 12.1 percent, extending the slide that began in September 2008.

Experts say despite this month's big drop, as the economic recovery picks up speed, credit card balances could begin to grow. "This is a moderate or half-speed recovery, but a recovery nonetheless," says Robert A. Dye, senior economist with the PNC Financial Services Group. "I would expect credit indicators to reflect that recovery going forward." 

Economic pressures linger 
Faced with an economic recession and its aftermath, banks have been extremely cautious about lending that could result in losses and have slashed existing cardholders' credit limits. Consumers, meanwhile, have also taken steps to survive financially, paying down their balances and avoiding the burden of excess debt. The combined result? Revolving debt levels dropped to $813.9 billion in September from $822.2 billion in August, plunging $159.7 billion from their August 2008 peak of $973.6 billion. That means the ordinary credit cardholder has substantially lower balances. Among families, the average U.S. household with credit card debt -- which government data shows totaling about 54 million -- has eliminated roughly $2,957 in credit card debt.

Debt levels as a whole rose, however. Overall consumer debt went up 1.1 percent to $2.41 trillion in September, concluding a streak of seven straight months of decline. The headline G.19 number includes both revolving credit and nonrevolving debt, which includes auto loans, student loans and loans for mobile homes, boats and trailers.

The delinquency boogeyman
Amid fears that borrowers won't be able to repay their debts, delinquencies have become a very real boogeyman for banks. That's made card issuers reluctant to lend and caused them to rein in credit limits and require higher credit scores from card applicants. But they also have charged off uncollectable debt, removing those seriously delinquent card accounts from their financial records. When banks eliminate those delinquent accounts, they get stripped from the Fed's G.19 numbers. 

The threat from those delinquencies appears to be lessening. Fitch Ratings said Wednesday that card issuers experienced fewer losses in the third quarter, "driven by tighter underwriting, positive trends in delinquency rates and a substantial cleansing of issuer portfolios," according to a press release. Fitch highlighted American Express, which had a delinquency rate of 2.5 percent at the end of the quarter, down from AmEx's 2005-2009 average of 3.14 percent. 

Not all cardholders are making on-time payments, though. "Fitch also expects credit loss rates will remain elevated until sustainable gains in employment emerge," the company said. 

Employment gains are needed
Those sustainable employment gains are long overdue. The latest employment report showed that payrolls increased by a larger-than-expected 151,000 in October, but that wasn't enough to put a dent in the national unemployment rate, which remained at 9.6 percent.

Still, increased hiring means paychecks, which economists say likely means more shopping by consumers. Shoppers are already showing some signs of life. According to MasterCard Advisors recent SpendingPulse estimates for total U.S. retail sales, most sectors of the retail industry experienced increased sales growth last month. "Overall, October showed a noticeable improvement compared to the same month last year," Michael McNamara, vice president of research and analysis for MasterCard Advisors SpendingPulse, said in a press release.  

PNC senior economist Dye says that ongoing gains in employment, combined with recent strength in the stock markets, could encourage increased credit card purchases. A good holiday shopping season, Dye adds, could finally mean positive growth for revolving debt levels.

But even an economic recovery won't erase all the lessons learned in the wake of the recession. 

"This is a new mentality on the part of U.S. households. They are going to display more conservative spending going forward," Dye says. 

See related: 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

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Updated: 02-21-2019