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U.S. Love Affair With Credit Cards Cools Off
By Phil Izzo
America’s torrid love affair with credit cards continues to cool off, but it’s still unclear which side — banks or consumers — has decided to take it slow.
From 1968, when the Federal Reserve started tracking the data, to its peak in September 2008 the amount of revolving, or credit-card, debt outstanding for U.S. consumers posted a near-uninterrupted rise. With the collapse of Lehman Brothers and the onset of a credit crisis came the first steady decline. The amount of revolving credit outstanding is 15% lower than the peak level and has posted a monthly decline in each of the last 20 months.
On Thursday, the Fed reported that revolving credit declined by $7.32 billion to $830.83 billion in May. The question is: why has it dropped? One explanation could be consumers constrained by the weakest job market in a generation is leading more people to default on their debt. Delinquencies jumped after the onset of the credit crisis at the same time as revolving credit began its contraction. But in recent months the delinquency rate has improved substantially, and yet borrowing continues to decline.
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Are banks or consumers aiming to slow down? That leaves two other explanations: Americans are paying down debt and not taking on more, or banks are offering less credit to consumers. Both are likely happening to some degree. If consumers are paying more money to credit, it has to be coming out of disposable income. The Commerce Department has noted that the U.S. saving rate has risen from lows seen earlier in the 2000s, but still remains far below levels recorded in the 1970s and 1980s.
Meanwhile, banks in April told the Fed’s senior loan officer survey that they continued to tighten lending standards and terms for credit cards, while some noted reductions in credit limits. And that came more than a year after the credit crisis hit.
Though both sides of the credit-card love affair are cooling off, banks seem to be more inclined to take a break.
America’s torrid love affair with credit cards continues to cool off, but it’s still unclear which side — banks or consumers — has decided to take it slow.
From 1968, when the Federal Reserve started tracking the data, to its peak in September 2008 the amount of revolving, or credit-card, debt outstanding for U.S. consumers posted a near-uninterrupted rise. With the collapse of Lehman Brothers and the onset of a credit crisis came the first steady decline. The amount of revolving credit outstanding is 15% lower than the peak level and has posted a monthly decline in each of the last 20 months.
On Thursday, the Fed reported that revolving credit declined by $7.32 billion to $830.83 billion in May. The question is: why has it dropped? One explanation could be consumers constrained by the weakest job market in a generation is leading more people to default on their debt. Delinquencies jumped after the onset of the credit crisis at the same time as revolving credit began its contraction. But in recent months the delinquency rate has improved substantially, and yet borrowing continues to decline.
Getty Images
Are banks or consumers aiming to slow down? That leaves two other explanations: Americans are paying down debt and not taking on more, or banks are offering less credit to consumers. Both are likely happening to some degree. If consumers are paying more money to credit, it has to be coming out of disposable income. The Commerce Department has noted that the U.S. saving rate has risen from lows seen earlier in the 2000s, but still remains far below levels recorded in the 1970s and 1980s.
Meanwhile, banks in April told the Fed’s senior loan officer survey that they continued to tighten lending standards and terms for credit cards, while some noted reductions in credit limits. And that came more than a year after the credit crisis hit.
Though both sides of the credit-card love affair are cooling off, banks seem to be more inclined to take a break.
Cooled off it right. Mine are in a block of ice. LOL, I gotta really really be in dire straights to use them, but the big banks should not be allowed to do what they are doing. I still say everyone needs to get together and stiff em. I look at it as taking our money back.
My wife and I got caught up in it about 15 years ago. We took out a loan, consolidated all of our debts, tore up all of the cards, and paid our debts off at a fraction of the cost.
I have 1 Credit Card to use only incase of an emergency (I don’t think we have ever used it) and my wife has some Dept. Store Cards because sometimes they have sales only if you use your credit card.
The Department Store Cards are paid off as soon as the bill comes in.
We are not well off by any means so there are some things we would like to have but can’t afford at the time so, we do without it.
We learned there is a big difference between Needing and Wanting.
I have 1 Credit Card to use only incase of an emergency (I don’t think we have ever used it) and my wife has some Dept. Store Cards because sometimes they have sales only if you use your credit card.
The Department Store Cards are paid off as soon as the bill comes in.
We are not well off by any means so there are some things we would like to have but can’t afford at the time so, we do without it.
We learned there is a big difference between Needing and Wanting.
Well, I don't know how anyone else feels about this but I don't really see it as a bad thing. Many a person has gotten themselves in serious trouble with credit cards. Cooling down was probably in order in my opinion.
Maybe it's because rates keep rising and people are wising up......
My husband, who has never defaulted on a payment (I pay the bills...lol), recently received a letter from his credit card company that the rate will jump from 11.9% (it used to be only 6.9%) will go to 17.9%. Not a lot of incentive there to carry a balance, is there?
I have a credit card with the same company and expect my rate to take a similar hike, in spite of the fact that I've never been late with a payment, either (I pay the bills......lol).
We are down to putting on the cards, only what we can pay in full at the end of the month........that's mostly things we buy online; otherwise we use debit cards/cash.
My husband, who has never defaulted on a payment (I pay the bills...lol), recently received a letter from his credit card company that the rate will jump from 11.9% (it used to be only 6.9%) will go to 17.9%. Not a lot of incentive there to carry a balance, is there?
I have a credit card with the same company and expect my rate to take a similar hike, in spite of the fact that I've never been late with a payment, either (I pay the bills......lol).
We are down to putting on the cards, only what we can pay in full at the end of the month........that's mostly things we buy online; otherwise we use debit cards/cash.
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