Don’t be part of the credit card borrowing boom
It’s that time of the month again. No, not that time of the month, but the one that gives your (male) blogger pain, tension and stress. You know, the one when the Federal Reserve releases its consumer debt statistics.
Credit card debt declines again… maybe
Identifying the emerging credit card debt trends contained in these is so fiendishly difficult that it’s almost enough to make you feel sorry for professional economists. On Friday, the Fed published the figures for August, and these showed that during that month “revolving credit,” which is nearly all credit card debt, fell for the second month in a row. This time the drop was $2.2 billion, or 3.4 percent, a smaller reduction than in July when the decrease was 5.4 percent. In the second quarter, revolving credit actually rose, though only by 1.5 percent.
All those figures are seasonally adjusted. Check out the Fed’s unadjusted data, and you’ll find a different story over recent months:
- Apr: $778.7 billion
- May: $781.4 billion
- Jun: $787.3 billion
- Jul: $788.8 billion
- Aug: $792.6 billion
The Fed’s website isn’t especially forthcoming about how seasonal adjustments are calculated, but some may think that the raw data–especially at a time when so many other factors are in play–is at least as interesting as the adjusted.
Credit card companies lending more?
One of the problems with the Fed’s figures is that they only measure the amount of money people owe credit card companies at a given moment. And that can decline for either of two reasons:
- Responsible cardholders paying down their balances
- Credit card companies writing off (“charging off” in industry jargon) debt, and passing it to collection agencies
As has been discussed previously on IndexCreditCards.com (most recently in Lies, damned lies, and credit card debt statistics), taking that last factor out of the equation can make a big difference, and it may well be that actual card debt is rising more quickly than the Fed’s data suggest. Indeed, DailyFinance last month ran a story under the headline, “Credit Card Debt Soars as Americans Borrow Like It’s 2006.”
Credit card interest rates a worry
Some would view higher levels of debt acquisition as worrying even if times were good and borrowing cheap. But, today, the economic outlook is uncertain, to say the least, and credit card interest rates are exceptionally high. At the time of writing, this site’s credit card rate monitor puts their average annual percentage rates at:
- Rewards credit cards: 17.63 percent
- Non-rewards credit cards: 14.88 percent
Credit card debt in context
It seems unlikely that card debt is going to turn into a credit bubble anytime soon. And the economic recovery, such as it is, could be killed stone dead if everyone suddenly stopped borrowing at once. So on a macro level, a mini-borrowing boom might not be a bad thing.
But on a micro level, when it comes to individuals and their families, unmanageable credit card debt can quickly turn into a nightmare. So, if you have any, you might be well advised to reduce it as much as you can, as quickly as you can. After all, few us us know what our employment and financial futures might hold.
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