The Incredible Shrinking US Credit Card Debt
Are we finally leaning on our credit cards less? Or are we simply out of options?
Marketwatch has the early report today that US consumer debt fell for the sixth straight month in July.
Credit card debt fell by more than $6 billion, or about 8.5 percent. Total US credit card debt is about $905 billion. That makes 11 straight months that American credit card debt has fallen, a new record.
Also in July, consumer debt fell by more than $21 billion, or roughly 10 percent. “Non-revolving credit,” things like car loans and mortgages, also fell by 11 percent.
These numbers are a really big deal. Marketwatch says this is the longest such streak of debt declines since the early 1990s.
What isn’t clear is the reason for decline, but there are a few theories:
- Americans are getting smarter about debt. Faced with harsh economic realities, people are simply spending less. They’re tightening their belt all around, and avoiding debt. Hopefully, this lesson is here to stay.
- There is less credit available. We reported recently that credit debt limits were being reduced, even for for “good” customers who pay on time. With less credit available, many people have no choice but to spend less.
- Chapter 7 bankruptcies are clearing debt. Filing Chapter 7 bankruptcy is more common than ever before, and this year there could be a record number of filers. Since Chapter 7 bankruptcy is designed to completely eliminate debt, some of this debt may simply be wiped off the books.
- Fewer people are making big purchases. This ties in with the first point, but with many people concerned about the long-term stability of their job, some people may be delaying big purchases – such as TVs, cars or computers – until they settle down or get back on their feet.
Most likely, all of the above are contributing to the decline. Why do you think overall consumer debt is declining? How have you changed your spending habits?