Consumer credit card balances fall again, Fed says

By Jeremy M. Simon

See updated story: Consumer credit card debt falls for 13th straight month, Fed says

Credit card balances fell again in October, according to Federal Reserve data, leaving the average card-carrying American household with nearly $1,000 less in credit card debt than it had a year ago.

According to the latest Federal Reserve data released Monday, credit card balances tumbled by $6.9 billion in October, marking a record 13th straight month of decline. The data, contained in the Fed's monthly G.19 report, looks at various components 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. Overall, revolving debt fell to $888.1 billion from a revised total of $895 billion in September.

Americans' credit card debt stood at $975.2 billion in September 2008. The 13 monthly declines since then have seen U.S. cardholders eliminate $87.1 billion in credit card debt. That means the average U.S. household with at least one credit card -- of which there are 91.1 million, according to payment-card industry newsletter the Nilson Report -- has eliminated roughly $956 in credit card debt during that period. That's a relief in a time of high unemployment rates and overall economic uncertainty for many families around the nation, though there's some debate as to exactly what it means.

Frugality or something else?
Taken as a whole, consumer debt fell nearly $3.5 billion to $2.483 trillion in October -- a record ninth straight monthly drop, dating back to February. While some experts say that the dropping debt levels are a sign of newfound American frugality, others say consumer psychology hasn't been fundamentally altered. Gregory Miller, chief economist with SunTrust Bank in Atlanta, says consumers are spending and will continue to do so. "As far as existing accounts are concerned, I doubt the household sector -- or the business sector -- will change their credit card spending," says Miller. He said external factors, such as lower gasoline prices over the past year, have allowed consumers to get more for their money and keep their card balances down.

Federal Reserve Chairman Ben Bernanke said in a speech Monday that "consumer spending also has been rising since midyear. Part of this increase reflected a temporary surge in auto purchases that resulted from the 'cash for clunkers' program, but spending in categories other than motor vehicles has increased as well," Bernanke said.

Those numbers would seem to be good news for an economy that's so heavily dependent on consumer spending. However, not all data is positive. Recent data shows the amount of unpaid credit card accounts fell in the third quarter. Also, a survey from the National Retail Federation showed the number of consumers who shopped during the Thanksgiving weekend increased from 2008, but the amount of money spent per consumer fell 8 percent

Banks play a role
Rubin says that rather than attribute the ongoing drop in card balances entirely to thrifty consumers, banks are also keeping card balances under pressure. "Are people not spending on credit cards because they don't want to, or are people not spending on credit cards because they can't?" he asks.

Evidence suggests that, at least in part, consumers may not have a choice when it comes to their card spending. Card issuers have been tightening credit standards, closing existing accounts and writing off bad debt they have been unable to collect. Some of banks' efforts to protect themselves from losses appear to have worked. TransUnion says that late card payments fell to 1.1 percent in the third quarter from 1.17 percent on the second quarter. TransUnion also reported that the average balance on outstanding bank cards fell to $5,612 from $5,710 one year earlier.

Rubin notes that even making a small minimum payment can keep accounts current and out of delinquency. That's why he is hesitant to cheer the lower delinquency figures.

However, when consumers are seriously delinquent, lenders may give up on ever collecting those unpaid balances. Often, Rubin says, it may be cardholders with the most substantial balances who find themselves unable to make payments when times get tough. "I would strongly suspect that those having the write-offs have the biggest use of credit," he says.

After a write-off at one bank, these consumers may no longer be able to qualify for credit from another lender. That means they might not be able to find the credit to spend, even if they wanted to spend it.

"It means there's not as much a change in psyche as there is a change in availability" of credit, Rubin says.

Consumer credit card balances fall again in October, Fed says

By Jeremy M. Simon

Credit card balances fell again in October, according to Federal Reserve data, leaving the average card-carrying American household with nearly $1,000 less in credit card debt than it had a year ago.

AMERICANS' CREDIT CARD BALANCES KEEP FALLING
Americans' credit card debt has fallen $87.1 billion from its September 2008 total of $975.2 billion. The chart below shows how steadily consumers have pecked away at that debt during a record run of 13 straight monthly declines in credit card balances. That's an average of $956 per credit cardholding household. Note: Decrease shown in billions.

According to the latest Federal Reserve data released Monday, credit card balances tumbled by $6.9 billion in October, marking a record 13th straight month of decline. The data, contained in the Fed's monthly G.19 report, looks at various components 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. Overall, revolving debt fell to $888.1 billion from a revised total of $895 billion in September.

Americans' credit card debt stood at $975.2 billion in September 2008. The 13 monthly declines since then have seen U.S. cardholders eliminate $87.1 billion in credit card debt. That means the average U.S. household with at least one credit card -- of which there are 91.1 million, according to payment-card industry newsletter the Nilson Report -- has eliminated roughly $956 in credit card debt during that period. That's a relief in a time of high unemployment rates and overall economic uncertainty for many families around the nation, though there's some debate as to exactly what it means.

Frugality or something else?
Taken as a whole, consumer debt fell nearly $3.5 billion to $2.483 trillion in October -- a record ninth straight monthly drop, dating back to February. While some experts say that the dropping debt levels are a sign of newfound American frugality, others say consumer psychology hasn't been fundamentally altered. Gregory Miller, chief economist with SunTrust Bank in Atlanta, says consumers are spending and will continue to do so. He said external factors, such as lower gasoline prices over the past year, have allowed consumers to get more for their money and keep their card balances down.

Federal Reserve Chairman Ben Bernanke said in a speech Monday that "consumer spending also has been rising since midyear. Part of this increase reflected a temporary surge in auto purchases that resulted from the 'cash for clunkers' program, but spending in categories other than motor vehicles has increased as well."

Those numbers would seem to be good news for an economy that's so heavily dependent on consumer spending. However, not all data is positive. A survey from the National Retail Federation showed the number of consumers who shopped during the Thanksgiving weekend increased from 2008, but the amount of money spent per consumer fell 8 percent.

CONSUMERS CONTINUE TO SHED DEBT
In October, Americans' credit card debt fell 9.3 percent, continuing recent trends. The below chart shows the percentage change in credit card debt since the third quarter of 2008 -- the last time credit card debt increased in a quarter.

Banks play a role
Michael Rubin, author of "Beyond Paycheck to Paycheck," says that rather than attribute the ongoing drop in card balances entirely to thrifty consumers, banks are also keeping card balances under pressure. "Are people not spending on credit cards because they don't want to, or are people not spending on credit cards because they can't?" he asks.

Evidence suggests that, at least in part, consumers may not have a choice when it comes to their card spending. Card issuers have been tightening credit standards, closing existing accounts and writing off bad debt they have been unable to collect. (In fact, a Fed representative confirmed that part of the decline in outstanding credit card debt is due to banks writing off bad debt.)

Some of banks' efforts to protect themselves from losses appear to have worked. National credit reporting agency TransUnion says that late card payments fell to 1.1 percent in the third quarter from 1.17 percent on the second quarter. TransUnion also reported that the average balance on outstanding bank cards fell to $5,612 from $5,710 one year earlier.

Rubin notes that even making a small minimum payment can keep accounts current and out of delinquency. That's why he is hesitant to cheer the lower delinquency figures.

However, when consumers are seriously delinquent, lenders may give up on ever collecting those unpaid balances. Often, Rubin says, it may be cardholders with the most substantial balances who find themselves unable to make payments when times get tough. "I would strongly suspect that those having the write-offs have the biggest use of credit," he says.

After a write-off at one bank, these consumers may no longer be able to qualify for credit from another lender. That means they might not be able to find the credit to spend, even if they wanted to spend it.

"It means there's not as much a change in psyche as there is a change in availability" of credit, Rubin says.

A desperate debtor's option: hardship programs

By Todd Ossenfort

The Credit Guy

The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues. Ask a question 'The Credit Guy' archives

Dear Credit Guy,
I've talked recently to two different credit card consolidators and explained that my husband's second job has taken more than a $10,000 cut this year. I am not able to work. Slowly, we have gotten ourselves in a jam and are unable to pay our credit cards. The consolidator said that she would recommend a hardship program. How exactly do I go about this? I need to do something soon. -- Barbara

Dear Barbara,
You are absolutely correct that you need to act quickly. Before you do anything, however, you need to know exactly what you can afford to pay each month toward your credit card accounts. It would be counterproductive to ask for and qualify for a repayment program that you ultimately cannot afford. Once you determine a realistic monthly amount you can pay on your credit card accounts, you will then need to keep in mind that the amount must cover all accounts you currently owe. For example, if you have four credit card accounts and $400 per month to cover those accounts, you will need to be sure the repayment programs you agree to (for example, $75 per month to creditor A, $85 per month to creditor B, $140 per month to creditor C and $100 per month to creditor D) do not exceed a total of $400.

I am assuming that the credit card consolidators you talked to did a full counseling session with a full budget analysis. If they did, you called the right agency. If they didn't, call someone else. I recommend you only speak to a qualified nonprofit credit counseling agency for assistance. You can find help from a trusted agency by visiting a local office of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. A certified credit counselor will review your current financial situation and make recommendations based on your income and expenses. If it makes sense for you to enter into a debt management plan (DMP), your counselor will explain how the plan works and let you know any fees associated with the plan. On a DMP, you will make one payment to the credit counseling agency. The agency will then disperse the money to your card issuers. Most DMPs will have your creditors paid in full in five years or less.

Many card issuers are now more willing to work with consumers than they have been in the past. Most have what is considered a "hardship program" offered through the nonprofit credit counseling agency that allows you to pay what you owe with a lower monthly payment than your current minimum payment. Each card issuer will have varying requirements you will have to meet in order to qualify for the program. Keep in mind that you will not be able to add to the balances of any card accounts that are placed in a hardship program with your card issuer.

While coming to an agreement with all of your card issuers, you will need to pay what you can on time and as agreed. Rather than paying nothing on any of your accounts, make minimum payments in full on as many accounts as you can, and pay nothing on the others until you quickly find a lasting resolution.

Take care of your credit!