Consumers Push Down Credit Card Debt for 23rd Month: Fed

DebtConsumers continued to shun credit card use, and in July marked the 23rd consecutive month of pushing down U.S. revolving credit, according to figures released today by the Federal Reserve.
Credit card debt fell 6.3 percent, compared to June, to $827.8 billion, the Fed reported.
Non-revolving credit, led by car loans, inched out a 0.6 increase in July. But overall consumer credit – not including loans tied to real estate – fell 1.8 percent to $2.418 trillion.
 American households are spending less and saving more as they reduce debt. The formula is not a healthy one for the overall economy, since consumer spending drives economic recoveries.
A private consumer research report released today confirmed that Americans are avoiding credit cards and opting for immediate-payment alternatives such as debit or prepaid cards or outright cash.
Javelin Strategy & Research reported that credit card use among consumers decreased 31 percent between 2007 and 2009 – from 87 percent in 2007 to 56 percent in 2009). The rate of decline could push credit card use below 50 percent by the end of the year.
A potential positive outcome is that consumers may get tempting offers from card issuers, such as higher rewards or lower fees, said James Van Dyke, president and founder, Javelin Strategy & Research.
“Javelin’s research shows that as the economy recovers, many credit card-wary, cash-hoarding consumers have the means, but simply lack the motivation to spend,” Van Dyke said. “The upside is that consumers can look forward to new offers such as lower fees, increased rewards, and reduced rates as credit card issuers scramble to adjust their strategies and look for new ways to court consumers and reinvigorate spending.”
Javelin’s report found that the 11 percent of consumers who claim they have an increased ability to put funds into savings, 46 percent have decreased the use of their credit cards, and 51 percent have decreased their spending on discretionary goods, such as entertainment, travel, luxury items and cars.
See the report from Javelin Strategy & Research.

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