Do you know what the average credit card debt is in America? Do you care? Should you care? Actually, you should care. The credit card debt balance in the USA is a good indicator of consumer confidence. The more credit card debt that people are willing to maintain, the more confident they are in the economy.
According to an article in the Wall St. Journal yesterday, the “big six” credit card issuers collectively anticipate that the amalgamated average credit card debt in the United States will increase by 6% in 2012 over its current balance. The last time that the credit card debt balance increased was in 2008 when the housing market, the stock market, and the economy in general fell into deep economic distress.
So why should we care if it is predicted that the national credit card debt will increase next year? Well, if consumers are willing to spend more, then they are probably feeling much better about their personal financial situation.
When consumers are feeling somewhat more confident in the personal situation and in the economy as a whole, they are willing to stretch a little more. They will buy more goods and services and be willing to maintain larger unpaid credit card debt balances. These balances will incur finance charges which increases the profits for the credit card issuers. Here’s the entire article from the WSJ on the national credit card debt situation:
Loan balances for six of the country’s largest credit-card issuers are set to grow this year for the first time in four years, as consumer confidence rises and credit quality continues improving.
If the estimates hold true, it would mark a turning point for an industry that has been hit by regulations and deleveraging by borrowers who tightened their purse strings after the recession.
“Consumers are feeling somewhat more confident [in] their ability to take on debt,” said Curt Beaudouin, vice president and senior analyst with Moody’s Investors Service.
Average combined balances at the six largest card issuers will grow about 6% in 2012, to $517 billion, after falling more than 5% to $488 billion last year, according to Moody’s.
The last time balances rose year over year was in 2008, when they reached $672 billion. That figure, however, measures all Moody’s-rated banks, but the “Big Six” card issuers represent the lion’s share of that amount, Mr. Beaudouin said. Those six are Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Capital One Financial Corp., American Express Co. and Discover Financial Services.
Delinquency rates and loan write-offs have improved dramatically across the industry as a result of consumer cautiousness. But that cautious behavior also caused portfolios at the biggest card lenders to shrink, crimping revenue growth. While card use has remained strong for banks, more customers have been paying down larger amounts of their balances, making loan growth elusive.
An increase in balances would bode well for net revenue growth, which Moody’s estimates will rise more than 6% this year to $84 billion for the six card issuers. Net revenue fell about 6% in 2011, to $79 billion.
Credit-card lenders make money by charging interest on revolving loan balances and other fees, such as annual account fees and late-payment fees. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 hampered issuer’s ability to raise interest rates and charge certain penalty fees.
Recent data suggest consumers are more willing to carry balances on their credit cards.
Revolving credit, which is primarily comprised of credit-card balances, grew at an annualized rate of 8.5% in November to $798.3 billion, the Federal Reserve reported this month.
Several of the largest card issuers reported Tuesday that their portfolios grew in December as loan performance improved further.
American Express, the largest credit-card company based on spending, said U.S. card loans grew 4.5% from November to $53.7 billion in December. Its delinquency rate fell to 1.4% in December from 1.5%, and its net charge-off rate, or percentage of bad loans it wrote off, fell to 2.3% from 2.4%.
Capital One, which has seen its credit performance ebb and flow in recent months, said U.S. card loans grew 3.3% in December to $56.6 billion. Its delinquency rate fell to 3.66% from 3.73%, and its net charge-off rate fell to 3.98% from 4.29%.
Citi, which reported fourth-quarter results Tuesday, said card loans in its North American consumer banking segment were $75.9 billion in the quarter, down 2% from a year ago, but up about 3% from the third quarter. The delinquency and net charge-off rates also improved in the quarter.
J.P. Morgan Chase last week said fourth-quarter card loans totaled $132.3 billion, down 4% from a year ago, but up 4% from the third quarter. Its delinquency and net charge-off rates also fell in the quarter.
Meanwhile, Bank of America and Discover said Tuesday that net charge-offs for their securitized card loans rose in December.
Bank of America’s net charge-off rate rose to 6.05%, from 5.67% in November. Its delinquency rate fell, though, to 3.82% from 3.96%. Bank of America, along with American Express and Capital One, reports fourth-quarter results Thursday.
Discover’s net charge-off rate rose to 3.15% in December, from 3.04% in November. Like Bank of America, its delinquency rate fell, to 2.32% from 2.43%.
In 2011, credit card debt decreased as it did in 2009 and 2010. According to an article in CNN.com, credit card debt decreased in every single state in the nation, with the exception of Mississippi where it remained essentially flat. The balances decrease quite significantly, The average credit card debt balance decreased by an astounding 11%. This followed a decrease in 2010 of 7%. Such a large decrease certainly indicates the the public was not spending and doing whatever they could to lower their debt and preserve cash.
The CNN article offers up the opinion from the CEO of Credit Karma, who echoes this thinking:
The decline came as weak consumer confidence kept spending in check and banks continued to tighten their lending and slash credit limits for many existing customers, said Ken Lin, CEO of Credit Karma.
With the prediction that the average credit card debt balance will increase by 6% in 2012, following significant decreases in this balance the past two years, and the first increase since the economic and housing collapse in 2008, perhaps the economy is turning around.
