Data recently released by the Federal Reserve demonstrates that our collective credit card debt is on the way down and has been trending lower for the last 11 months. The "Fed" issues a monthly Consumer Credit report that tracks an array of spending metrics throughout the country. The most recent cited an annual decrease in credit card debt of 13.1 percent, totaling $899.44 billion. (Staggering, huh?) In dollars, that amounts to a $9.9 billion reduction in total debt, which is the largest decline since February.
Experts are in agreement that one of the factors contributing to this reduction is an overall decrease in credit card limits. While for some spenders, individual card limits are hardly a barrier to accumulating debt, it does prevent many people from spending more than they should. Credit card companies reported they lowered the card limits on more than 58 million users in the last year.
The more important factor contributing to the decrease in credit card debt is that we are actually cutting back on material goods purchased with credit. Granted, a drop in consumer spending has a serious impact on the economy, which is one reason (among many others) we just experienced the most punishing financial setback in almost 100 years.
Other things causing a stir in credit card marketing departments include the fact that since January 2008, more than a third of consumers have paid off or closed an active account. Their reason? The banks' habit of raising rates and implementing surprise fees.
As a result, profits are continuing to slide. Bank earnings are dropping every month and internal squabbles continue to make the front page and afternoon business reports.
Moreover, credit card delinquencies are on the rise. According to The Fed report, Bank of America reported an increase in delinquencies to 14.54 percent of all card holders. Citigroup was up to 12.14 percent while Discover went from 8.43 percent to 9.16 percent. Serious delinquencies and a rise in the number of consumer bankruptcies may also be contributing to the number of closed accounts.
To remedy the falling profits and the pending impact of the CARD Act, credit card issuers continue to raise fees and rates. For example, Wells Fargo will push all interest rates on some credit products by a significant three points come the end of November.
For the banking industry, these numbers foreshadow a difficult future. With the end of access to easy credit and an undercurrent of anger toward the credit industry is prompting many Americans to once again start stuffing their mattresses.
It's not a stretch to assume that in the coming years, credit cards will only be found in the billfolds of the most financially sound Americans--which is not necessarily a bad thing.
Credit can be a very powerful financial advantage. However, the companies that issued the majority if it in the last several years preyed on the collective naivete of its customers, encouraging them to spend and perpetuating the illusion that access to credit signified prosperity.
How wrong so many of us were.
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