Even though revolving debt is up, delinquency is well below average.
WASHINGTON – It seems Americans walked away from the recession with a key lesson about credit cards: If you’re going to use them, pay them off as quickly as you can.
A new report from the American Bankers Association found that the share of cardholders who pay off their balances in full climbed from 28.6 percent to 29 percent in the fourth quarter of 2013, the highest share on record. It’s not monumental growth, but when coupled with data on the decline in credit card delinquencies, it shows that Americans have become more responsible in how they use plastic.
Delinquencies for bank credit cards, coming in at 2.44 percent in the first quarter, were well below the 15-year average of 3.82 percent, according to the ABA. The Federal Reserve Bank of New York reported that just 8.5 percent of credit card debt was seriously delinquent — at least 90 days past due — in the first three months of the year, the lowest level recorded since data collection began in 2003.
In the run-up to the 2008 recession, Americans gorged themselves on plastic. Credit card debt soared 87 percent in the decade preceding the crisis as real wages and the savings rate flatlined, according to the Fed. People were spending beyond their means and fell behind on payments once the economy collapsed and unemployment climbed.
Americans spent the next several years paying down their credit cards, while banks pulled back on lines of credit, all of which drove debt levels down. Now, the reduction in credit availability is leveling off, with the ABA reporting that credit lines are contracting at their slowest rate in a year. At the same time, the Fed said revolving debt, which includes credit card balances, is growing, up $1.7 billion in May.
“Consumers have a greater capacity to meet their financial obligations due to an improving economy, low interest rates and the significant deleveraging they’ve done in recent years,” ABA chief economist James Chessen said. “More and more consumers are using their credit cards as a payment vehicle, paying off or paying down their balances each month.”