Credit card debt: is the worst over?

Last month, IndexCreditCards.com’s credit card news posed the question: “Credit card debt: Is the worst over?” In so far as it attempted an answer, the blog concluded that it probably was.

Since publication, new data have tended to confirm that conclusion. The Federal Reserve, for example, published Jan. 7 consumer credit data for the month of November 2010, which showed that Americans paid down their revolving credit (which is almost entirely made up of credit card debt) by an additional $4.2 billion that month. That was the 26th consecutive month during which card balances had fallen, and took the total from a high of $957.5 billion in 2008 to $796.5 billion in November. That’s a big drop of nearly 17 percent.

Credit card companies’ lower charge-offs

Then, last week, NPR revealed that the six biggest credit card companies had all reported significantly lower charge-off rates for December 2010. “Charge-offs” is industry jargon for debt that card issuers write off as uncollectible, and pass on to collection agencies.

For some years now, Citi has been suffering the highest charge-off rates of the big six, peaking at 11.55 percent in March 2010, and remaining as high as 9.4 percent in November. In December, that number tumbled further, to 8.34 percent.

Of course, this is good news, but it’s not quite as cheerful as it at first seems. You can only charge off at the sorts of rates Citi that has been doing for so long. Then it becomes inevitable that–as more and more victims of the downturn lose their credit cards–a core of good customers who survived it intact would be reached. Just as sobering is the thought that those who are in trouble but still have accounts would make December payments a big priority if they planned to use their cards to fund their holiday season spending. January’s figures may be interesting.

Credit cards still a problem for many

Just how many Americans remain burdened by credit card debt was revealed Monday by Equifax, one of the big credit bureaus. It said that there are still plenty of people out there owing up to 17 percent of their income to credit card companies.

Using this measure of the percentage of income owed, the Equifax study found that those in metropolitan statistical areas (MSAs) were shouldering the heaviest burden. And, although no one state stood out as having been hit hardest, it identified the six whose residents had the highest balances on credit cards:

1. California: $90,566,978,30
2. Texas: $48,833,824,544
3. Florida: $47,568,265,541
4. Ohio: $28,985,502,668
5. North Carolina: $22,386,064,11
6. Washington: $18,288,819,367

In a statement, Dianne Bernez, Equifax’s senior vice president for corporate communications, summed up the situation:

“The good news is we’re seeing Americans paying off their debts and becoming more fiscally fit. However, the numbers show that while people’s intentions are good, Americans still have a lot of debt to tackle and often don’t know where to start.”

Published 01/26/11 (Modified 04/23/12)