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Consumer Debt Down
In a report released last week, the Federal Reserve indicated that consumer debt dropped a total of $15.8 billion in April, the second-largest monthly debt decline on the books after March’s $16.6 billion plunge.
More specifically, revolving credit (such as credit cards) decreased by $8.6 billion and non-revolving credit (like car loans) decreased by $7.1 billion.
Although these numbers are considerable (totaling $43.1 billion in the last three months), consumer credit still stands at a whopping $2.52 trillion – so we’re in no danger of eliminating our borrowing entirely.
The decreases in consumer credit can happen one of two ways:
* Consumers pay down debt: Each time you make payments toward a credit card bill or another type of loan, you eliminate some of your debt. When millions of people do this, it cuts the total amount of consumer credit.
* Loan issuers write off debt: When a company like a credit card issuer assumes a debt will not be collected, it can “write off” or “charge off” the debt, which means it no longer considers that debt part of its eventual assets. Write offs also contribute to decreases in consumer debt, which leads to the next statistic in the news.
Credit Card Defaults Up
Major credit card issuers like Bank of America, American Express and JPMorgan Chase have reported significant increases in credit card defaults.
In other words, rising numbers of Americans are not paying their credit card bills on time (or at all).
It seems all major card issuers are in a similar situation: Bank of America predicts a 12 percent charge-off (or write-off) rate this year, American Express has reported a 10.4 percent default rate and JPMorgan Chase’s default rate is above 8.3 percent.
Some analysts expect credit card issuers to lose as much as $80 to $90 billion this year in uncollected debts – no surprise, considering how many people have recently lost a significant portion, if not all, of their income due to layoffs and cut hours.
Meaghan Olson
meaghan@totalattorneys.com
The Bankruptcy Blog
Posted June 17th, 2009 by Armen Hareyan
