Credit card trends misread

People who write about credit cards often have sad lives, which may explain why many months ago your correspondent happened across an obscure blog that was arguing a revolutionary proposition. At the time, the wisdom was that the Federal Reserve’s monthly G. 19 consumer credit statistical release showed that most people had been chastened by the recession, and had adopted much more conservative approaches to managing their credit card debt. Profligacy was out, and had been replaced by responsibility and frugality.

After checking the blogger’s figures, this column reported his or her hypothesis. In short, it proposed that the credit card trends that had seen such a high reduction in debt over the last couple of years were largely down to card issuers writing off (“charging off” in the industry jargon) the balances on accounts that had defaulted, and passing them on to collection agencies. Far from embracing a new frugality, many consumers–and especially the unemployed and those whose incomes had dropped significantly–were more reliant on their cards than ever before.

Credit card debt in figures

The latest Federal Reserve G. 19 statistical release shows just how far credit card debt has fallen since its high in 2008. That year, revolving credit (which largely comprises credit card balances) was $957.5 billion. According the latest release, which was published September 8 and covers July 2010, that figure has fallen to $827.8 billion. That’s a drop of $129.7 billion or 13.5 percent.

You can see why glass-half-full types talked up this decline and portrayed it as a welcome return to prudence on the part of credit card users. Sadly, it’s starting to look as if those who thought the glass half empty might turn out to be right.

Credit card news getting worse?

The New York Times reported Friday on a study that suggested that charge offs during the 12 months beginning early in 2009 totalled $80 billion, which is roughly the total amount of credit card debt reduction in the Fed’s figures. The week before, The Washington Post published an even more pessimistic take. It quoted an analyst, Odysseas Papadimitriou, who’d found that, in the second quarter of 2010, banks had charged off $21.8 billion, while credit card debt had declined by only $12 billion.

The difference, the analyst said, was down to extra debt that consumers had been piling on their cards. In other words, far from American consumers paying down balances, they may actually be significantly increasing them.

Credit card rates key?

If you’re finding that your balances are drifting (or shooting) upwards, and your credit score hasn’t yet taken a battering, then it’s imperative that you review the credit cards that you have. Many credit card rates have increased significantly over the last year or two, and you may well find that cards that were best buys when you applied for them are now ruinously expensive.

As always, match the card you choose to your personal credit card use patterns. But if you’re carrying forward significant balances each month, you probably should consider focusing on low rates.

The Simmons First Visa® Platinum Rewards card has an exceptionally low variable purchase APR right now, although it’s only available to those with stellar credit scores. 

Published 09/27/10 (Modified 12/19/13)