Credit card debt on rising trend
You’re not expected to be sympathetic, but your blogger has a tough job at the moment. One of the most important stories swirling around the credit card industry right now concerns debt, and that’s not a straightforward topic.
On the one hand, the truly scary financial turmoil that followed Europe’s sovereign debt crisis and Standard and Poor’s downgrading of America’s credit rating has made any responsible personal finance blogger warn readers against maintaining or building credit card debt. Over the last few days, IndexCreditCards.com urged such caution in When the sky is falling, pay down credit card debt and Ashton Kutcher’s wise words on credit card use.
On the other hand, it’s widely acknowledged that some increase in credit card debt may well be a precursor to the current feeble economic recovery finally gaining real traction. Some economists estimate that 60 – 70 percent of U.S. economic activity depends on consumer spending, and it’s hard to see that returning to normal without some rise in credit usage.
Credit card trends reversing
So you can read as either good or bad news the Federal Reserve’s latest figures on consumer credit, which were released (almost invisibly because of rather more pressing economic headlines) on Friday. They cover June, and reveal that in that month revolving credit, which very nearly entirely comprises credit card debt, rose by $5.2 billion. Convert that to a percentage change at an annual rate, and you’re looking at +7.9 percent.
Back on July 11, this blog (Credit card debt makes a rare uptick) talked about the sharp reversal in credit card trends that rising revolving credit represents. In February this year card debt hit a recent low of $791.0 billion, which was a considerable achievement given that its high of $957.5 billion occurred as recently as 2008. June’s figure, of $798.3 billion, was a result of more than two years of falls, punctuated by only three increases, in December 2010, May 2011 and June 2011.
Credit card defaults on the decline
Yesterday, Fitch Ratings released data that showed that responsible credit card use is continuing to be less of a challenge for consumers. In a press release, Fitch noted that in May:
Credit card defaults registered the second largest monthly decline since the passage of the Bankruptcy Reform Act in 2005 and are now back in line with historical averages. In addition, both prime card monthly payment rate (MPR) and late stage delinquencies improved…
In other words, people are managing their credit cards better than they have at any time since well before the credit crunch.
Credit card rates less likely to rise
Yesterday, the Fed announced that it would keep its interest rates low for at least another two years. That doesn’t necessarily mean that credit card rates won’t go up at all, but it is likely to moderate any increase. So does that mean that it’s okay to go ahead and charge more to your cards?
Well, maybe it’s safer than it seemed earlier in the week. But more prudent readers might think that that the best policy would be to keep their own credit card debt low while hoping that others boost the recovery by increasing theirs.
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