In a recent announcement from the federal government, it seems that Americans have been successful in trimming more than $93 billion in credit card debt from 2008 to 2009. That news was good news to hear from the standpoint that it seems that consumers are getting wiser about using credit cards. But, it is not the whole story.


Now, it seems, according to some analysis of the information and data provided that the debt fall is not just because consumers are pinching pennies and using credit cards less. Rather than becoming frugal, many Americans have simply left behind their debt.


Some studies suggest that consumers are falling farther and farther behind on their debt. This is evident throughout 2009 in fact. As a result, this has caused a surge in the number of debt charge offs occurring.


According to the figures, consumer debt that is directly tied to credit cards and other unsecured debts fell from a high of $969.3 billion in the fourth quarter of 2008 to a low of $876.1 billion just one year later. If this was due to consumers actually paying down balances and using credit less, this could be a good indication for the economy as a whole, but that does not seem to be the case, reports state.


After the data was released, though, analysis of that data was done and as a result, a better idea of what actually happened with that debt fall was clear. In the third quarter of 2009, for example, the number of bank charge offs reached the highest level they have been since 1985.


A charge off happens when a consumer declares bankruptcy and the debt is written off. It can also happen when a credit card debt is not paid and becomes 180 past due and the lender writes the debt off.


It is estimated that about 90 percent of that debt drop of $93.2 billion was attributed to the bad debt lenders had written off the books rather than being paid down by consumers. In fact, a closer look reveals that only $10 billion in the debt drop was attributed to consumers paying off their debt or at least paying it down. Most of that $10 billion decrease consumers paid happened in the first quarter of 2009, rather than throughout the year.


According to annual data released by the federal government, the average American household has nine credit cards. However, there is evidence that the industry will continue to see changes.


Consumers have access to less credit as of late and credit card companies have reduced the credit limits of even their good customers. More stringent rules on lenders are in place and will start affecting the credit card industry quickly.


Experts do believe that when the economy begins to improve and recovery becomes stronger, it is likely that more consumers will begin to pay down their debt and that could mean that with less debt being accumulated and more debt being paid down that the billions of dollars of debt Americans hold could improve.



Similar Posts:

Share