According to the latest report of the Federal Reserve on consumer credit, the consumer debt on credit cards has now dropped steadily for over couple of years even as continuing trouble on the economic front have made both banks and borrowers less willing to have too much debt on their plate. There isn't a great reason to believe that things are going to change anytime soon. Fed data shows that the balances on credit cards fell by 7.2% in August and continues their downward journey which began way back in September 2008. The revolving levels of debt have dropped from 827.2 billion dollars to 822.2 billion dollars in July which is massive plunge of over 150 billion dollars since August 2008. There are roughly 54 million households with credit card debt and government data shows that the average debt has been eliminated by roughly 2804 dollars even as consumers have enhanced their repayment.
The overall debt of consumers has fallen to 2.41 trillion dollars which represents a drop of 1.7 percent. The number includes both revolving credit comprised entirely of credit card debts and non revolving debt made up of loans for mobile homes, boats, student loans and vehicle loans. With low confidence amongst consumers, there is more focus on repaying of the debt. This could also be in response to the changes on their monthly statements, motivated by the Minimum Payment Warning which was mandated by the Credit CARD Act of 2009. This warning will constantly indicate to the credit card holders how long it will take if they consistently made the minimum payments on the credit card bills every month. This also indicates that banks are receiving more bills on time.
According to experts this decline in the credit card balances will conclude sometime next year. In fact the first half of 2011 is likely to witness a higher revolving credit to start with. The survey also shows that lending standards have loosened slightly by the banks on credit card applications. Late stage credit card delinquency rates have also declined significantly and so have the default rates which should begin to decline further. This will reduce the impact of the write-offs on credit balances. It is expected that once there is a rise in momentum of the labor market, there will be acceleration even in the consumer spending at a more steadies pace. That would augur well for the economy as well.