Credit Card Debt Evaporating in U.S.; Down 13 percent in August

Total credit card debt outstanding in the United States retreated to pre-recession levels months ago. But now, the slide is deepening as consumers and banks shed card debt at ever-accelerating rates.

The Federal Reserve reported late Wednesday that revolving debt, mostly from credit cards, dipped at an annual rate of 13.1 percent in August. Almost $10 billion in credit card accounts outstanding were wiped off of banks’ books in the month. Both numbers are among the highest ever reported for a month.

August marked the 11th consecutive month of declines in credit card debt. Since September 2008, when card debt peaked at an all-time high of $975 billion, banks have shed nearly $76 billion in card account balances. The Fed said that the total outstanding figure was $899 million at the end of August.

The last time the figure was that low was May 2007, meaning the contraction in card balances is much more rapid than the growth before the downturn.

In its consumer credit report Wednesday – also called the G.19 – the Fed revised the figures it reported for July for credit card losses. The report initially showed an 8 percent annualized decline in credit card debt, but the drop was revised to 3.1 percent yesterday, signaling that perhaps August’s numbers will also turn out to be less severe.

Many economists have pointed to a weak labor market and consumer frugality as the source for credit card debt decline. But others note that a sharp spike in bank charge-offs is really moving the needle (“Chargeoffs a Key Driver in Declining Credit Card Balances,” Sept. 23).

Chargeoffs are keeping accounts receivable management companies busy now, but there is uncertainty for some firms in the future.

“ARM companies that specialize in credit cards have been swamped with work this year,” Mark Russell, director at Kaulkin Ginsberg, noted. “But if credit card debt continues to contract, there may be fewer accounts to work down the road.”

The Fed said total consumer credit contracted at an annual rate of 5.8 percent in August. Non-revolving debt – like that in auto, student, and personal loans – fell at a 1.6 percent clip in August after plummeting 12.6 percent in July.

Non-revolving credit was helped in August by the government’s “Cash for Clunkers” auto program, which encouraged many to take out car loans in the month. August also saw many students taking out loans for college as Fall semesters got underway in the month. But it was still not enough to move the numbers into positive territory.

August marked the seventh straight month of declines in total consumer credit for the first time since 1991. Since the Fed began keeping consumer credit records in 1943, the number has never dropped eight months in a row.

Total consumer credit outstanding – not including loans backed by real estate – was $2.46 trillion at the end of August, down from an all-time high of $2.58 trillion in July 2008.