Credit card debt–a dramatic turnaround
Revolving credit (which mainly comprises credit card debt) rose in December for the first time in more than two years, according to The Federal Reserve’s monthly analysis of consumer credit published Monday. Revolving credit increased 3.5 percent to $800.5 billion in December, up from $798.2 billion in November.
This jump will come as surprise to some analysts.
Polling consumers during the holidays, the National Retail Federation (NRF) found only 27.6 percent of respondents planned to use their credit cards during the festive period. The majority of consumers intended to use cash, debit cards, prepaid credit cards or some other payment medium, according to the NRF poll. In November, TransUnion, one of the big credit bureaus, published research finding that eight million Americans had stopped using credit cards altogether.
Credit card trends are complicated
For a long time now, commentators have been celebrating consistently falling total card balances, and congratulating American consumers on newly discovered prudence and financial responsibility. However, a few have pointed up that billions of dollars have been written off by credit card companies as uncollectible, and then passed to collection agencies. The grim process of shifting uncollectible revolving debt to collection agencies accounts for a significant proportion of the overall drop in revolving credit, they argue.
Is this credit card news actually bad?
After the recent credit crunch and recession, it’s not surprising that many see almost all debt as bad. But many economists disagree.
The Fed’s consumer credit figures show nonrevolving credit on the rise for some time with it now standing at over $1.6 trillion. Much of that increase has been a result of looser lending criteria for auto loans. As a result, vehicle sales are quickly recovering. That’s been great news for car buyers, auto manufacturers, dealerships, lenders and the economy in general.
The fact is, some level of personal debt may be necessary to nurture the fragile, green shoots of economic recovery. Even if economic recovery is to some extent fueled by credit, rising consumer spending tends to boost confidence. In turn, confidence is closely tied to employment, the housing market and business investment. So these latest credit card trends could turn out to be good news. But only if credit card companies are lending to those who can comfortably afford to make payments.
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