The most recent data from the Federal Reserve says that credit card balances have dropped sharply in the month of June. This decline could very well be attributed to the fact the both consumers and banks have become more cautious in handling excessive debts.
Each month the Federal Bureau receives its G.19 report on consumer credit. The last one stated that revolving credit which is made up entirely of credit card debt has plummeted to a staggering 6.8 decrease in June. The previous month's decline was 6.3 percent. Counting from May, the country's total credit card debt fell from $922.3 billion to $917 billion. In addition to this, Anuj Shahani, director of a competitive tracking service for a group's financial services say that credit card balances have undoubtedly dropped. He adds that the mean credit card balance for U.S. households fell to $7,489 in the second quarter of 2009.
According to the Federal Reserve, the decrease started in October 2008 and continued to June. The pullback which lasted for nine months has been the greatest since the report stared in January 1968.
The non-revolving credit section of the report which involves auto, mobile home, boats and trailer loans and student loans didn't contain much difference either. It showed that even these kinds of credits consumers make have also decreased to 3.8 percent in June. The total amount of credit within this month equals to $1.586 trillion.
In general, consumers have a total debt of $2.503 trillion in June. This figure is down approximately 10 billion from May, a drop that is more than double the $4.7 decline that economists predicted.
The decline could be explained by looking at people's attitude. According to Susan Menke, senior financial services analyst with Mintel International in Chicago, though there had been upward changes in credit card debts, "the long term trend is down". Shahani says that the highest mean in credit card debts was achieved in 2008 with $8,202 in the fourth quarter. He explained that "credit was easy, people were spending a lot".
Despite these declines in credit, the Commerce Department reports that people are still spending. In fact, their spending rose to a 0.4 percent in June. This is in contrast to the saving rate which declined to 0.1 percent in the same month. Most of the public's money goes to essential of living like groceries and gas.
The decrease in credit could therefore be attributed to the fact the consumers are more into paying off their debts than in adding more. Many consumers choose to pay off their debts and stop using their credit cards.
On the other hand credit providers too are seen to contribute to the decline. With the banks' desire to reduce the risk levels, credit lines are being cut preventing consumers from going out and purchasing using their credit cards. A survey was conducted in July and the results revealed that two out of five credit card holders are being stressed out by their credit providers in the past twelve months. Negative actions from providers like cutting credit limits, increasing interest rates, switches to variable rate cards, offering incentives in exchange to closing accounts have been experienced by forty-two percent of card holders.