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Consumer Credit Report Reveals Another Drop in Card Debts

By Faye Mergel
Published: Saturday, January 2nd, 2010

The Federal Reserve released its consumer credit report this month revealing that credit card debt fell once again this October, the 13th straight month consumers have shown reluctance to use their plastic. This report also revealed that revolving credit, majority of which is made up by card debts, decreased at an annual rate of 9.3 percent during that same month. In October 2008, card debts totaled at $976.1 billion, but they went down to $888.1 billion on October this year—an $88 billion drop just within a year.

Consumer Credit Report Reveals Another Drop in Card DebtsAside from card debts falling down, delinquency rate for cardholders is likewise posting a decline, which means loans that are 30 days or more behind their due dates are dropping. During the third quarter of 2009, this rate stood at 1.10 percent and is expected to go down to 1.07 percent by the end of this year.  Credit report issuer, TransUnion, predicts that the delinquency rate will go down to 1.04 percent one year from now.

Specialists explained that many consumers are discouraged by the high interest rates and additional fees that banks are charging them, which is why they are cutting down on card purchases. Nonetheless, experts view the overall decline as a good sign for consumers.
An online poll this November conducted by the National Foundation for Credit Counseling’s Web site shows that paying down debts is the priority of the 8,500 consumers who participated in the poll. This poll asked respondents what they would do if they had an extra $500.

Seventy-seven percent answered that they will use it to pay down existing debts, 14 percent said they will put it in savings, 7 percent plan to use it in buying gifts this holiday season, and only two percent plan to use it for themselves.

NFCC spokeswoman, Gail Cunningham, explained that Americans are no longer comfortable having too many debts. She said the positive side about the financial meltdown is that is has taught consumers to become more engaged with their financial situations.

National Retail Federation’s 2009 holiday survey shows that only 28.3 percent of consumers plan to use their cards in making purchases this year from 31.5 percent last year, a ten percent decline.

Some experts suggest that card issuers are also responsible for the decline. They noted that card issuers have cut down the limit of 54 million consumers from April 2008 to April 2009, which discouraged them from making more purchases through their plastic. Not only have consumers eliminated debts in their credit report, they are also working hard to avoid racking up more financial liabilities.

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