Consumers Loading Up Charge Cards But Experts Are Split Over Significance Of Rising Debt
As Americans charge up a storm, some new studies suggest that debt is not out of hand.
Even with consumer debt over $1 trillion, the borrowing figures “are not daunting,” The Conference Board, a non-profit business-sponsored study group, declared Wednesday.
“Debt totals keep rising not because of wanton profligacy, but because more consumers are using their credit cards for a wider range of purchases.”
More and more people charge food and medical care, but the practice is one of convenience and those bills are paid promptly, said Lynn Franco, a consumer researcher for The Conference Board.
Many people also are borrowing more to collect frequent flier miles and other premiums offered through credit cards, economists say.
Others, however, fear overextended consumers threaten the economic expansion and the health of the banking system.
Late payments on credit card bills have been rising steadily, and many banks have responded by tightening credit standards or charging riskier buyers higher interest rates, according to the Federal Deposit Insurance Corp. Those measures should serve to cut banks’ losses to bad credit, MasterCard International says.
Regardless of the reasons for mounting debt and delinquency rates, credit-watchers say the trend is difficult to ignore.
Consumer credit continues to climb to new highs, growing by $6.6 billion, a 6.9 percent annualized pace in April, the Federal Reserve said Tuesday. While that was the slowest growth since August 1993, it still pushed total consumer credit to a record $1.14 trillion, a figure that makes credit watchers uneasy.
The American Bankers Association reported Tuesday that 3.53 percent of all credit card accounts were delinquent, or at least 30 days late, at the end of the first three months of this year.
When expressed another way, delinquencies stood at 4.62 percent of the total dollar amount charged on bank credit cards at the end of the quarter, closing in on a 10-year high. The ABA said many Americans may be reaching their debt limits.
Moody’s Investors Service said Tuesday that delinquencies are mounting in part because more people with questionable credit ratings are obtaining credit cards.
“In an attempt to gain or maintain market share, card issuers are granting credit cards to potentially riskier customers,” Moody’s said. “However, competitive pressure has kept card rates on a downward path since 1993, meaning that they can’t fully price the accounts to compensate for those risks.”
Personal bankruptcy filings were up 16.8 percent in the 12-month period ended March 31 and are on pace to reach an unprecedented 1 million this year, according to the Administrative Office of the U.S. Courts.