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Are consumers really paying down credit card debt?

By Greg McBride, CFA · Bankrate.com
Monday, May 24, 2010
Posted: 9 am ET

Conventional wisdom says that consumers have been aggressive about paying down their credit card debts, and as evidence, the Federal Reserve's Consumer Credit release known as the G19 release is often cited. Specifically, the category known as revolving debt which is comprised largely of credit cards, declined by $92 billion in calendar year 2009. But looking at a separate Federal Reserve release on charge-off rates shows that commercial banks charged off -- or wrote off as uncollectible -- more than $80 billion in credit card debt during 2009.

Further, the G19 totals for revolving debt reflect not just the balances revolved each month but also those that are paid in full by cardholders at month-end. Many of these cardholders are charging less to their cards each month, either due to their own spending cutbacks or because they've had their credit lines trimmed and are resorting to other methods of payment.

So I ask you, are consumers really paying down credit card debt? The evidence shows this to be more urban legend than reality.

Tell me your story. How much credit card debt do you have now versus one year ago? And for you rewards-card-toting consumers that faithfully pay your balances in full, are any of you charging less to your card each month?

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8 Comments
Hugh
May 27, 2010 at 11:30 pm

Who cares what you have to say, Greg? Aren't you the CFA genius who said we would never see sub-5% rates again?? Now you are spewing the same garbage this week. Your columns are as useless as your financial "expertise".

Debra James
May 25, 2010 at 9:36 pm

Last year I made a purchase, and put it on a 0% credit card. My last payment will be next week; which is the same time the deal expires. Since I was such a good customer the credit card company offered me another 18-month 0% deal(I have to pay a one-time 3% balance transfer fee though) which I plan to use to make home repairs and a small room addition. Even if I used a home equity loan, I couldn't get a deal like this.

So, right now I have less debt than I did the same time last year, and plan to have more debt soon. However, I am comfortable with my decisions, because instead of using my savings for my upcoming expenditures I can keep my money in the bank to earn enough interest to at least halve the transfer fee. This will also allow me to keep my savings intact and liquid in case of a real emergency.

My husband and I have no other debt besides our mortgage. I paid cash for my used car 4 years ago, and we paid off his used truck in 18 months. Both vehicles were only 2 years old when we got them, and we plan to keep them for as long as possible.

We have rewards credit cards, and I use them to buy almost everything. The cash back and the extended warranty are great benefits. We pay off the balance every month, and haven't paid interest in a few years. I know some people say that the transaction fees are a rip-off to the merchant, and ultimately are passed on to the customer, but I argue that these fees are less costly than returned checks, counterfeit money,. Also, I don't feel comfortable carrying around a lot of cash.

Ellen
May 25, 2010 at 12:44 pm

After much efforting, I finally paid off my credit cards in December 2008. I know it hurts my credit score, but I also closed the accounts. No more credit cards for me. I now have a year's worth of expenses in savings. And I sleep a lot better at night.

GeeGs
May 25, 2010 at 10:33 am

Since the Recession hit, my biggest change is to make twice-monthly payments to my credit card. So what would otherwise be a $2,000 balance, is instead a $900 balance. My general rule is, send a payment every "off" week.....ie: the first of the month my mortgage is due, the 15th my student loans are due, sooooo on the 7th and the 21st I send a credit card payment. While the consequent lower checking balance hurts my pride a bit, it is a bi-monthly psychological victory. And I'll take any win I can get.

Martin Atlanta GA
May 24, 2010 at 10:04 pm

Doing my "darn-dest" to get out of debt...stay out of debt...and scream with all the others on Dave Ramsey...I'M DEBT FREE!!

Cheryl
May 24, 2010 at 4:55 pm

I used to use credit for everything I could, now I am cooking at home with my new stove and cutback on everything not necessary. I have a home equity line I used for a new furnace 2 years ago and was planning on paying off in 5 years. With my new savings I am able to get it paid off this year. The plan is to get to $0 debt minus the house ASAP. So I used to have anywhere from 300-500 on my cards to pay off each month now I keep it below $200 and pay off every 20 days.

So I guess the more important thing is to keep from putting that much on them in the first place.

Cindy Smith
May 24, 2010 at 4:23 pm

I am boycotting the banks as much as possible. I have 0 in credit card debt and have had none for several years. I do have a car loan that I pay my "MOM" 4.2% interest each month. My small mortgage is 4.5%. Right now I am saving 50% of my take home pay :)

Tom Denver, CO
May 24, 2010 at 2:10 pm

Same debt as a year ago. $0. I committed to $0 three years ago, got it to $0 and stayed there. I charge a bit less, to reflect lower income (bye-bye bonuses), but not by much.

The big story is my staying committed to my emergency fund and savings strategies. My salary went down, but overall, my savings have increased at the same rate on a dollar basis, not just percent basis. Learning to live on less now will hopefully mean more fun when salaries increase again.