Decrease In Credit Card Debt All Down To Write-Offs, Report Says

Credit card debt fell last year only because of consumer defaults and bank write-offs, a new study argues.

In 2010, U.S. credit card debt dropped to the lowest level in eight years, according to credit reporting agency TransUnion. But there is more evidence Americans may have taken on more credit card debt than they paid off.

A study by Cardhub.com of Federal Reserve data found that last year, while banks wrote off a total of $75 billion in credit card debt, the level of the debt only declined by around $67 billion. This, according to Cardhub, suggests that the "entire decrease [in overall debt] is the direct result of Americans defaulting on their debt."

"The widely-held belief is that consumers have been paying down debt," said Odysseas Papadimitriou, CEO of CardHub.com. But, he said, as the pressures of the recession eased for some and consumer confidence improved, so did spending. Last year, for the first time since 2008, figures from the Federal Reserve also showed showed Americans accumulating more debt.

Some economists insist, despite the wave of defaults and write-offs, many Americans are more wary of paying with plastic.

"Charge-offs are part of the picture, there's no doubt about that" said Gregory Daco, economist at IHS Global Insight. "But there has been a change in attitudes to credit, and paying it off," he added, quoting a report by the Federal Reserve Bank of New York, which found the way people used credit cards had changed significantly.

"A lot of people are taking on less debt and paying off existing balances," Daco added.

Many Americans spent beyond their means in the lead-up to the financial crisis tapping the rising value of homes, stock portfolios and east credit. As the recession deepened and unemployment grew, millions of Americans found themselves struggling to pay off their balances. In 2009, as the recession was ending, consumers paid off $10 billion in debt.

Comments

[cameroonworks]

07:06 PM on 04/09/2011

As a nation credit card debt is definitely not a good thing. Understandably it helps propup the economy but a greater cost. Lets stay to our means and reduce debt which could eventually enslave the nation
http://www.creditcardshelplines.com/index.html
http://www.creditcardshelplines.com/consolidate-credit-cards.html

[Linda from Deerfield]

09:28 AM on 03/29/2011

That is apparently how Donald Trump does it -- just default and let somebody else pay.

[Liberalgirlandproud2]

02:04 PM on 03/23/2011

We paid off 5 of our 6 credit cards recently. We only owe about 3k now and that will be paid off later this year. We are also paying off our car at the end of the year - 2 years early. We cut all the unecessaries like digital cable (Netflix), cell phone, etc and are just throwing every bit of money to the mortgage and student loans to hopefully be fully out of debt in 3 1/2 years. Dh's job could be wiped out at any time by the stroke of the pen of Congress so we aren't taking any chances....This has totally changed our way of life and of our decision making process as to what we will spend our money on- debt repayment is all we care about right now.

[pearl1977]

12:07 PM on 03/23/2011

Thanks for the story. Very Beneficial to my practice as a Bankruptcy Lawyer in Bakersfield California.

Joseph Pearl
Bakersfield Bankruptcy Attorney
http://BankruptcyBakersfield.com

[Liberalgirlandproud2]

02:05 PM on 03/23/2011

You used this thread to spam/advertise your business. Really?

[DebtNavigation]

03:05 PM on 03/24/2011

Especially when bankruptcy isn't as helpful as it used to be and may not even be available in its most advantageous form (Chapter 7) for many filers, who instead must use Chapter 13.

There are practical ways to fight the collector and make it through the gauntlet on your own. http://www.myhopeseries.com

[Thomas Steinruck]

11:16 AM on 03/22/2011

I want to warn everybody who has or is considering a Continental/ Chase Presidential Mastercard. After making a large payment so that I would have enough available limit to make a large purchase and get the frequent flyer miles, Chase without any warning lowered my credit limit by the same amount! Now I don't have the money to make t...he purchase nor the space on the credit card to charge it! Customer service would not reinstate the original credit limit. I have never been late on a payment to this or any other credit card. I have had this card since it was first offered but I will be canceling it as soon as practicable. I don't need a $400 a year card that pulls the rug out from under me. I can pay my Presidents club dues on a free credit card. AVOID Chase like the plague!

[DebtNavigation]

11:06 AM on 03/22/2011

I've been saying for years that the public isn't paying off, it's charging off. Now it's time for the public to learn how to get protection WITHOUT necessarily filing bankruptcy. Laws like the FCRA, FDCPA, TILA, and state consumer protection laws all come into play, along with concepts like usury, unconscionability and accord & satisfaction.

In Mexico in the mid-'90s Wall Street engineered a currency coup that tripled the debt owed by small businesses and family farms and also allowed for them to be massively ratejacked on top of it. Mexicans consequently formed the "el Barzon" movement and pushed back Wall Street and deposed their ruling party of 60+ years. In this country YouTube phenom Ann Minch has already declared the debtors' revolt and begun going after them http://www.revoltstartsnow.com

If you've been pushed under, you can read every other page of my book for free: http://www.scribd.com/doc/25443175/Debt-Hope-Down-and-Dirty-Survival-Strategies-Evaluation-Version-Complete

[yougg]

07:59 AM on 03/22/2011

Why are people so dumb? Credit is just too easy to get from a credit card company. Pay cash. Pay off your credit card monthy. My parents were teenagers during the Great Depression. The vast majority of people don't really understand what it is like to be really poor. Use it up, wear it out, make do, or do without.

[earteaga31]

04:51 PM on 03/21/2011

That's ultimately the last resort. Banks can raise rates, up monthly's, unilaterally change the terms of the deal. Ordinary people can stop paying the bill. Morally or ethically, that is a discussion for another time, but as a tactic it works. Consider the all around greed involved; a person borrows as much as they can, they stop paying, the bank writes it off and gets bailed out for the amount anyway, then after 6 months of it being off the books, they go back and tap the same person offering them more credit. viscous cycle

[brianelwinpomeroy]

09:06 PM on 03/21/2011

A cycle that works. The upcoming derivatives will make things more interesting when various markets crash. When things go wrong for the banks, they would walk away and write it off, let the tax payer pay. People are suckers for not doing the same. I would say everyone should protest by filling the courts but the USA would just borrow the money and cage the entire the country - wonder how many dope smokers they would pay to cage before they grab a brain.

[kizzie]

04:07 PM on 03/21/2011

http://www.youtube.com/watch?v=283_m1mLPhk&feature=related
Interesting little video on the Fed.

[victorberry]

03:26 PM on 03/21/2011

I agree! There is no way in Hell that ordinary Americans are paying off their credit card debts. The whole idea of ordinary Americans consuming less and saving more is totally bogus.

The personal savings data is derived from how much personal debt has been reduced by whatever means. If people default on credit card, auto loan, or home mortgage debts, then their personal balance sheets have improved because they don't owe anyone any money. But it's crazy to infer from this that personal savings are up.

Instead, show me the amount of personal savings by family income percentile and I'm sure it will show that the upper 10% are the only ones able to really save money in this rotten economy.

[Kenz300]

01:33 PM on 03/21/2011

Credit cards will put you deeper into debt if not used wisely and paid off monthly.

If you can not afford to pay cash for something that costs $100 wait for it to go on sale for $80.
That is a lot better than paying full price plus 20% interest for the same item or $120.

If you go thru life paying $120 for things you can get for $80 you will always be broke.

Interest on credit cards will drag you down.

[CreditCardsorg]

01:21 AM on 03/24/2011

I agree! People should start spending less on what they are actually earn.

[UberdanSounds]

12:17 PM on 03/21/2011

Nothing is going to change until we get rid of the Federal Reserve. They're about as Federal as Federal Express! It is going to be dissolved, mark my words. They just have to do it in a way that doesn't injure our economy any further. It's bad bad right now, I've been hurting since 2009 like most. But, I'm looking at it as a way to develop new skills & work for myself. That is working out much better than I thought.

[Ed Baker]

04:43 PM on 03/21/2011

With what would you replace it?

[lafemme]

11:08 AM on 03/21/2011

If the banks hadn't engaged in fraud, more people would still be employed and thus able to pay off their debts. It's all connected; problem is only banks get bailed out, not people, in this the United Banks of America.

[Ed Baker]

04:46 PM on 03/21/2011

Defaulters always have someone else to blame. One should have reserves to service debt - or one shouldn't take it on. The card companies, like all lenders in the last 20 years have been far too liberal in issuing accounts. So they will get what they deserve. Those who default - have only themselves to blame. Just because someone will sell you money - it doesn't mean it's a good idea to buy it.

We used to require 12 months of reserves on every loan we issued when I started in the financial business many thousand years ago. :) On mortgages, we stopped at 3 years wages, with 20% down, and 12 months of reserves, minimum 5 year credit history, 25% total debt to income ratio......

I still think of these guidelines for myself whenever I take on a new debt.

[Liberalgirlandproud2]

02:44 PM on 03/23/2011

I don't completely disagree with you, but it's a little more complicated than what you're saying. Credit cards are often used for medical debt, either their own or their spouse's because 40 million people are uninsured in this country. Then the credit card companies rate jack the people so they can't even make their payments.

Or perhaps a roof needed replaced or other damage that isn't covered by the insurance company. I am not saying people haven't gone and ran up the credit card on frivolous spending, but there is a large portion of credit card debt that isn't because of that at all.

[ta8ersalid]

10:54 AM on 03/21/2011

Good.

Default away. The banks deserve what they get, they created this mess.

I figure the banks and Wall street lost me over $50,000+ with the fraud they created in the housing market.

Anyone that takes that cash away from the banks, good for you.

[Ed Baker]

04:47 PM on 03/21/2011

And higher rates for you when you want to borrow. Banks are mere "agents" in these transactions. You're only hurting yourself. You can't hurt them - they aren't part of the transaction.

[lafemme]

05:18 PM on 03/21/2011

Toxus McTortus.

[Liberalgirlandproud2]

02:46 PM on 03/23/2011

When people default we all feel it. Banks will not be taking the loss, they will pass it on to the rest of us. There is a real moral hazard to defaulting.

[Rahm11219]

09:35 AM on 03/21/2011

The credit cards I got in college absolutely ruined me financially. I made my bed and I have to lie in it now but man, they are EVIL. Wish I never ever got one.

[Ed Baker]

04:48 PM on 03/21/2011

Yes, they lent you money when you wanted it, and you promised to pay it back with interest. That makes them evil. Or were you just stupid for not saying "no thanks."

[Rahm11219]

09:15 AM on 03/22/2011

Whoa there, Ed. A little hostile? I was 18 a too stupid to say no thanks.

[Liberalgirlandproud2]

02:49 PM on 03/23/2011

Namecalling is not really helpful and you have no idea the nature of their credit card debt. This person also admitted they wished they never used them, and accepted responsibility so why are you being so rude?