Sunday, February 1, 2009, AM | Leave Comment
CardTrack.com reported on Jan. 29, 2009 that consumers are dramatically scaling back how much of their credit card balances they pay each month.
The percentage of outstanding card debt paid – fell by 2.5 percentage points to 16.1%.
The drop in November, the latest month available, is among the largest on record, according to CardTrak.com, a credit card research firm.
Credit card payment plunge comes as consumers have become more reluctant – and less able – to take on debt.
Revolving debt, much of it on credit cards, dipped at a 3.4% annual rate in November to $973.5 billion, after flattening in October, preliminary numbers from the Federal Reserve show.
Even with less debt, consumers are struggling to pay their card bills. The average household with at least one credit card owed $10,728 in 2008, nearly the same amount as in 2007, according to CardTrak.com.
As the economy slumps, even consumers who can pay their bills may feel it’s prudent to reduce their monthly payments to conserve cash instead, says Cynthia Ullrich, a senior director at Fitch Ratings, which rates corporate debt.
Moral of the story
It’s good for the consumers that their credit card debt has decreased a little but they still struggle to pay bills. On the other hand:
As credit card payments fall, and loan delinquencies and defaults rise, issuers increasingly will see profits eroded.
Already, to shore up balance sheets, card issuers have raised interest rates for some borrowers even as the Federal Reserve cuts rates.
They have also introduced new or higher credit card fees.