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Credit card debt yo-yoing

by Peter Andrew
Credit card debt yo-yoing

Credit card trends (actually, come to think of it, most trends) often take a while to become identifiable and those surrounding card debt look as if they may be in a state of flux. So what’s been happening since the Great Recession?

Last December, after 26 consecutive months of falls, credit card debt rose by $2 billion. Some people were surprised, but–especially after it fell again in January and February–many put it down to holiday spending. It was just a blip.

Credit card debt up again… but only a bit

But, on Friday, the Federal Reserve issued its seasonally-adjusted monthly analysis of outstanding consumer credit, and it showed that revolving credit (which is nearly all credit card debt) rose again, this time by $1.9 billion. It’s important to get this into perspective.

If you compare the Fed’s figures for revolving credit in the last quarter of 2010 ($800.7 billion) with those for the first quarter of 2011 ($796.1 billion), you’ll see that this form of debt has actually fallen $4.6 billion. So the small rises in December and March have been more than wiped out by the bigger credit card trends of consumers paying down balances, and using plastic more responsibly.

Blips and trends

But trends tend to reverse, and, if you get enough blips they eventually form a trend. So it’s not necessarily sensible to ignore the fact that in two of the last four months for which data are available, credit card debt has increased. Think of it as a yo-yo. If your yo-yo had been slowly unwinding downwards for two years and suddenly began jerking upwards, you’d think something was changing.

And there’s certainly enough expert opinion to support the view that change could be happening. Back on March 10, when this blog reported on these trends (Credit card debt resumes fall), it quoted IHS Global Insight economist Gregory Dacoof:

“The rebound in non-revolving credit is likely to spread to credit cards as consumers’ animal spirits return,” according to a Wall Street Journal report. Dacoof added, “we might see a few more drops in revolving credit over the coming months, but there is evidence that we’re at a turning point.”

An economist who may have got something right. How refreshing.

Credit scores improving; consumers braver

Mr. Dacoof isn’t alone.

Last week, Equifax, one of the big credit bureaus, published its National Credit Trends Report for March. In a press release, Michael Koukounas, one of the company’s senior vice presidents, remarked:

“Across multiple loan products, we are clearly seeing indicators of sustained credit growth – most notably within automobile finance and bankcard origination. Consumer behavior is now fueling much of this improved loan performance as borrowers are more aggressively paying off their outstanding debts, which is positively impacting their credit risk scores and making them more attractive to lenders. If this trend continues, I would expect to see a further loosening of available credit.”

Credit card companies must take responsibility

Unmanageable credit card debt can cause households horrific stress and misery, and it’s not surprising that millions of Americans reacted to the sight of their families, friends and neighbors in distress by vowing to avoid using their cards. However, sensible credit card use can be a real boon as well as financially smart.

If the country is to avoid another credit bubble, credit card companies are going to have to be more responsible in their lending policies. Yes, cardholders should be more responsible in their borrowing too. But they’re just people, vulnerable to ignorance, unreasonable optimism and human frailties. It’s the issuers who are supposed to be the experts. And it’s their and their shareholders’ money at stake.

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