Much is being made of the fact that credit card debt has dropped $70 billion, or more than 7%, since hitting an all-time peak of $975 billion in September 2008. I’ve heard the statistic mentioned several times in stories about how frugality is becoming mainstream.
Yes, we are saving more, as the uptick in the personal savings rate shows. Yes, we are spending less, as retailer bankruptcies demonstrate.
And many folks are laying off their credit cards, either voluntarily or because their issuers have raised rates, lowered limits or even closed their accounts.
What’s often missed, though, is the contribution of charge-offs to the decline in credit card debt. As noted by Phil Britt of insideARM, a newsletter that tracks the collection industry, debt that’s written off as uncollectible by credit card issuers promptly disappears from the Fed’s consumer credit figures.
Quantifying how much of the $70 billion drop is due to bad debt is tough, but Britt noted that credit card charge-offs hit an all-time high of 9.55% in the second quarter–a huge uptick from the first quarter’s 7.64% rate.
So yes, there’s less riding on the cards, but it may be as much consumers hitting the wall as consumers getting religion.
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