Credit Card Usage Continues to Decline
by Bill Hardekopf
The Federal Reserve reported on Friday that consumer borrowing increased in January for the first time in a year. The increase alone was significant, but the news was even more surprising since it occurred despite another drop in credit card loans.
According to the Federal Reserve, total consumer borrowing rose to $2.456 trillion in January, an annual rate of 2.5%. The increase came from nonrevolving credit like auto, personal and student loans that rose at a 5% annual rate. Revolving credit, which is primarily credit card usage, fell for the 16th consecutive month, decreasing at an annual rate of 2.3%.
Recent studies underscore some clear trends either taking place or projected for credit card usage.
- Credit card usage has dropped substantially over the past three years, from 87% of consumers surveyed in 2007 to 56% in 2009 (Javelin Strategy and Research). More here.
- Debit card usage is increasing significantly. According to their annual reports, MasterCard's debit card usage increased 10.5% in the United States while Visa reported a 17% increase. MasterCard also reported its credit card usage dropped 13%.
- The number of new credit cards issued declined 45% last year, according to Equifax Consumer Credit Trends.
- The average balance on Visa, MasterCard, and American Express accounts dropped 5% to $5,434 in the fourth quarter of 2009 from $5,729 in the fourth quarter of 2008.
- According to a BIG Research survey in January 2010, 30.5% of respondents said they would pay with cash more often, up from 23.0% a year earlier.
- The same study showed consumers are concentrating on eliminating debt. 37.9% are prioritizing paying down debt over the next three months, rising from 34.4% in December.
- Issuers will reduce credit card lines by $2.1 trillion in the next 18 months, wiping out nearly 45% of the spending power U.S. consumers now have on credit cards, predicts investment bank Oppenheimer & Co. More here.
Over the past 18 months, banks cut credit limits for 58 million cardholders. If issuers keep this up and cut 45% of the spending power on credit cards, they will be forcing consumers to continue to reduce their usage of credit cards and find alternative forms of payment like debit cards and cash. That might not be a bad thing for the financial well being of the American consumer.
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