Troubling Trend: Consumers Shedding Less Credit Card Debt

Troubling Trend: Consumers Shedding Less Credit Card DebtU.S. consumers paid down nearly $32.5 billion in credit card debt during the first quarter of 2013, that’s a 7 percent reduction compared to a year ago.
But that’s where the good news ends in terms of debt loads, according to CardHub.com‘s update on credit card balances. CardHub’s study found that U.S. consumers are on pace to rack up nearly $47 billion in new credit card debt this year.
The first quarter of 2013 marked the first time in a year that consumers did not improve their credit management, compared to the corresponding quarter the year before.
The average household currently has $6,591 in credit card debt.
This year is shaping up to be a lot like 2011. That’s when U.S. consumers began the year with a $32.7 billion pay-down — and ended the year having reacquired that amount, plus another whopping $46.71 billion on top of that.
A significant decrease in consumer debt is common during the first quarter of the year, when annual salary bonuses and tax refunds kick in. That’s when consumers also shift their focus to paying off purchases made during the holiday shopping season.
However, Americans paid off 7 percent less this year than they did during the first few months of 2012, when we finished with a $35.8 billion net increase in credit card debt at year’s end.
Credit card debt levels have continued to rise in recent years despite lessons learned from the financial
crisis and Great Recession. Since the crisis peak in 2007-2008, credit management among Americans had been improving.
But the $32.5 billion in existing credit card debt that U.S. consumers paid off during the first quarter of 2013 represents the smallest first quarter pay-down in the past four years.
Americans paid off 7 percent more of our credit card debt in Q1 2012, 1 percent more in Q1 2011, 17 percent more in Q1 2010, and 28 percent more in Q1 2009.
“However, the numbers indicate that we’re starting to regress a bit, and that’s something that must be
addressed before debt levels rise to the point where consumers can no longer sustain them and we default in droves,” said CardHub CEO Odysseas Papadimitriou. “That’s going to ultimately require a shift in perspective from the belief that living off credit is acceptable to an approach that emphasizes saving and responsible spending in the context of post-recession income levels.”
The credit card default rate continues to drop and is now at its lowest point since the fourth quarter of
2006, CardHub said.
But consumers have not taken advantage of their improved ability to pay their bills on time to also pay down their debts, the study found.

Leave a Reply

Your email address will not be published. Required fields are marked *