Credit card balances continue to decline

The consumer debt through credit card balances has dropped for a record 25th month, and has plummeted below 8 billion dollars according to the Federal Reserve report. According to the experts, in spite of the weak economic condition, it wouldn`t be long before consumers start pulling the plastic out of their wallet. The revolving port of the debt according to the Fed's report made up for the entire credit card balanced, and had plunged by 12.1% to continue the trend that had started 2 years ago. Despite this great drop, the credit card balances are expected to grow in the coming months, partly because of the signs of recovery. The recovery is indeed moving forward as shown by various credit indicators.

Banks too have been exercising a lot of caution as far as their lending standards are concerned. The credit limits of the card holders have also been reduced to a great extent. Consumers have been trying to survive financially too by paying off the balances and avoid debt altogether. The revolving debt currently amounts to 813.9 billion dollars, dropping from 822.2 billion dollar mark in August, marking a drop of 159.7 billion dollars. This also marks a major drop from the revolving debt levels two years back that stood at 973.6 billion dollars. There are around 54 million households with credit card debt according to the statistics from the government which show that the average household has eliminated about 2957 dollars of credit card debt.

Interestingly, the consumer debt has gone up by 1.1 percents to touch 2.41 trillion dollars, putting an end to a 7 month decline. However, amidst concerns of consumers unable to pay back their debts, credit card issuers have become slightly reluctant to lend and the lending standards have become tighter depending more on the credit card scores. The delinquency rate is coming down though. American Express, for example has had a delinquency rate which is 2.5% by the end of the quarter, which is down from the previous 4 year average of 3.14 percent. Credit loss rates are also expected to stay elevated until the employment conditions improve.

The employment reports meanwhile show some improvement too. There has been an unexpected rise of 151,000 as far as the payroll size in October is concerned. However, the average unemployment rate of the country still remains very high at 9.6 percent. The increased number of paychecks though, according to economists will translate to more shopping.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.