November 6, 2009
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News: Americans Continued Downward Trend
Americans have continued to trim the fat by reducing credit card debt and making the switch to debit or cash. The newest Federal Reserve's monthly G.19 Report indicates that for the 12 consecutive months, Americans for reduced card debt for September drop another $9.9 billion. The report encompasses a variety of debt products including revolving credit, credit cards, auto loans, student loans, and boat and recreation vehicles. According to the report, U. S. credit card debt was $975.2 billion in September 2008 and after dropping each month since then, it now stands at the $889 billion; an annualized 13.3 percent drop. The current drop represents the longest in history. According to the Nilson newsletter, Americans have trimmed an average of $950 per household of card debt.
Overall, in September for the eighth consecutive month, Americans reduced debt by nearly $15 billion to $2.456 trillion; another record breaker. Non-revolving credit which does not include credit cards, bell by 3.7 percent to $1.567 trillion. Although consumers have done a good job at reducing credit card debt, lenders could be looking at another influx in defaults with the announcement that the national unemployment rate reached 10.2 percent during the month of October. It could take several months before that occurs as write-offs do not typically occurred until accounts are 90 days or more past due. It looks as though it will be another difficult holiday season.
Although the stock market continued to perform on Friday, lenders did not fair as well; the increased job loss most likely played a significant role. The decline in credit card spending is positive move for consumers; however, it can stifle earnings for lenders. Less spending means smaller balances and lower interest income. Despite the fact that the federal interest rate is near a record low, lenders have continued to increase interest rates to capitalize on higher profit margins. While banks are in a heated race to the finish line, lawmakers are fervently pushing to get the enactment date of the new Credit CARD Act moved up to December 1st. Unfortunately, for most consumers, the effort is too late. Most have already been slapped with the increased interest rates and additional fees.