Sunday, March 14, 2010

Credit Cards: We're Still Lovin' 'Em

Last year, incomes were at record lows and unemployment rates were at all time highs. However, the big question is: how did consumers manage to pay down their credit-card debt just in the last year? Because credit-card debt dropped significantly last year, a new MoneyNews article suggested that Americans aren’t giving up their love for credit-cards any time soon. And get this, the meat of the decrease resulted from charge-offs and not from payments. Once debt is 180 days past the due date, Banks and credit-card companies will most likely charge-off debts. The Federal Reserve doesn’t separate debt payments from charge-offs when reporting national figures of credit-card debt reduction. According to online sources ( who analyzed and studied a survey, the lion’s share of the $92.3 billion drop in card balances was due to lenders that charged off a record-breaking $82.37 billion of credit-card debt last year.

Lender charge-offs are main reason for debt reduction

As of January 2010, according to government reports, credit-card balances have been declining for 15 consecutive months. Referring back to the survey, 2009’s first quarter was the main time during the 15 month time-span when consumers actually paid their credit card balances down. Believe it or not, the consumers paid down their card balances by 45.8 billion, with lenders charging off a added $17.95 billion. Preceding the initial quarter of 2009, world-wide card balances either remained the same of increased.

Credit-card debt is paid down, but not quite down yet

Continuing with the survey, they suggested that the record-braking lender charge-offs for the past several months was evidence that the financial pressure face by many Americans is too palpable to ignore. Consumers have not been paying down their credit-card debt after all. In the third quarter of 2009, credit-card debt charge-offs were a record high of 10.1 percent. In the last quarter, the rate was somewhere lower, and the situation is predicted to become much worse. MoneyNews states that Moody’s Investor Service predicts the charge-off rate will climb to 12% in 2010. Conversely, in the fourth quarter of 2006, just a year before the country’s economic misfortune, the charge-off rate was a small 4%. Does anyone want to time travel now?

Not a Big Surprise

The underemployed and unemployed Americans are still financial “busted” and leaning on the aide of credit cards and emergency cash loans for assistance. And with an added ripple effect in the pond of this recession being due to increased charge-offs by lenders, there’s no wonder the financial stress hasn’t let up yet… Well, isn’t it?

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