100 million credit card accounts are gone since 2008 – Credit card balances decline by 22 percent since their 2008 peak.

Credit cards have been used as a lifeline and a way to live beyond one’s means in the United States for many years.  Yet the current environment of deleveraging is hitting credit cards hard.  The outstanding balance on credit card debt has reached a level last seen over a decade ago.  This is positive since many were simply using credit cards as a method of spending money they did not have.  Yet with access to debt becoming more restricted for households, how many people that once had credit cards have shifted to safety net programs like food stamps?  It is impressive to see how the epitome of American debt spending in the credit card is contracting in this current environment.  Americans are simply in the process of deleveraging and credit cards are one of those items that signal that debt growth does have a maximum tipping point.

Credit card balances contract

The latest government data shows a significant decline in the balance owed on credit cards:

balance of credit cards

This is a sizeable drop of 22 percent since the peak was reached back in 2008.  The good news is this debt is moving lower but behind the numbers is also the fact that many have pushed this debt aside via bankruptcy.  Just like mortgage debt has fallen courtesy of millions of foreclosures we have to read between the lines and look deeper than the headlines.

The number of open credit cards has also declined significantly:

2008:                     496 million accounts

2012:                     383 million accounts

This is a drop of over 100 million active accounts.  Many of you probably recall during the boom the phone book level of mail coming in courtesy of credit card companies.  I remember at one point I was getting about 5 offers each and every day!  This went on for a solid two years.  The amount of credit sloshing around in the system was amazing and obviously many of you had similar experiences during the peak days of the credit bubble.

Revolving debt has pulled back in a strong fashion from the peak as well:
total revolving credit debt

Over $1 trillion in revolving debt is now closer to $840 billion in debt.  This is still a large amount given the average interest rate on credit cards is still exorbitantly high.  Keep in mind this figure is for all revolving accounts, and credit cards are the largest segment of this debt.  The typical interest rate on credit cards is around 12 percent.  Given that the Fed is handing out money to member banks at near zero percent, the spread is fantastic for those who have access to the Federal Reserve.  Most Americans realize that 12 percent is way too much for going into debt especially when banks are offering 0 percent on savings accounts.

So what does this tell us about the overall nature of our economy?  The massive drop in credit card balances is likely another signal of the compression of our middle class.  The large balances were more of a part of the middle class living beyond its means and we are seeing this being exposed in the current environment.  With credit standards hitting Americans hard, many lower income Americans are being shut out of the credit card market altogether.

Those days of 5 offers in the mail?  They are gone.  But the offers that do come in are more for balance transfers with high fees since banks are trying to generate revenue on paying clients.  Yet many of those with good credit are likely to carry smaller balances.  Either way, the massive decline in credit card balances shows us that Americans are simply unable to spend like they did during the bubble days.

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6 Comments on this post

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  1. Jim Quinn said:

    According to the Federal Reserve, banks have written off $226 billion of credit card debt since 2008 and transferred the losses to the American taxpayer.

    Therefore, consumers have actually increased their actual credit card debt by $32 billion since 2008.

    866 – 672 – 226 = -32

    September 18th, 2012 at 11:32 am
  2. clarence swinney said:

    bye bye Mitt

    “There are 47 percent of the people who will vote for the president no matter what. There are 47% of them who are dependent upon government, who believe they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, you-name-it and the government should give it to them. These are people who pay no income tax.” That was Mitt Romney swan song bye bye election. He attacked 50% of those who are working poor and pay full payroll tax. He did not mention his thousands of rich pals who pay no income tax and who pay 1% or less in payroll tax. He did not mention corporations like Verizon with 6 Billion income in 2011 and paid no tax. Or GE over 5 years paid 2.3% on profit of 81 Billion. Or that we rank ahead of only Chile and Mexico As Least taxed in Oecd nations. Or that 1% pay 28% of total income in Federal-State-Local taxes as a percent of gdp and middle class pay 27%. MITT IS GONE. A RICH NUT.

    September 18th, 2012 at 1:24 pm
  3. Andrew said:

    You are correct to point out that most of this debt ‘reduction’ is due to writeoffs, not payoffs. People going from credit cards to food stamps don’t get there by paying off their cards in full first.

    The double whammy is the millions of stable consumers with formerly good credit whose credit lines have been ‘pre-emptively’ slashed, or cards cancelled outright, by panicky issuers. That drastically alters credit usage ratios, a double whammy to the FICO even though the cardholder has never been late nor spent excessively. Plunging FICOs trigger a self-fulfilling domino effect on the cardholder as a typical 730s FICO drops to the 630s based entirely on card issuer actions, not the cardholder’s behavior or altered risk circumstances.
    These credit line slashes/cancellations are unprecedented in their severity from previous credit contractions, and a huge factor in why the dwindling middle class is now unable to ‘consume’ the US out of this Great Recession.

    September 18th, 2012 at 5:00 pm
  4. Jeff DeClercq said:

    It is so obvious that in a credit driven economy, the level of GDP must shrink to the level of credit available to consumers. Regardless of the reason, we have to wait for the next generation of big spenders to replace this one and in the meantime , we are Japan

    September 19th, 2012 at 3:03 pm
  5. clarence swinney said:

    DEBT FACT CHECK
    Romney ad states Obama increased debt by 5Trillion. LIE.
    Bush last budget ended 9-30-09 with a Debt of 11,900B
    Current Debt is 16,000B.
    Increase of 4100B. Most the result of Bush programs.
    Bush Tax Cuts–Two Wars—Part D Medicare
    CBO reported that 2001-2010 Bush “New” programs added 5100B
    and Obama “New” programs added 1300B.

    Bush tax cuts cost $1900B– 2001-2010 -over ten years.

    Sad part is Top 1% gained 37.6% and Top 5% gained 48.3%
    and bottom 60% gained 16.5%.

    Romney has the ignorance to attack that 60%.
    He is proposing Tax Cuts where the top will get a $250,000 tax cut.

    The Top 10% need a Tax Increase not a Tax Cut.
    The top 10% need a larger tax on their Estates.
    It is shameful when one family, Walton, has more wealth than 90% of the families.

    It is unAmerican plus unlike Christlike to enrich the rich more when we have 46 Million getting Food Stamps and unemployed or under employed at highest since Great Depression.

    We need jobs, higher pay for workers, health insurance, and pensions for all workers which is what built the great American Middle Class and gave us a happy society.
    Clarence Swinney ticked off

    September 20th, 2012 at 6:26 am
  6. Stephen Verchinski said:

    Listened once to a person calling in about persons who defaulted on credit cards due to the loss of their jobs…the person calling in was a manage of a credit card division at a bank in the USA… Often wondered that as the credit cards were reduced …maybe also the blowhards job. We really really need a huge minimum wage boost to at least parity with 1968 adjusted for inflation to today so we can get all of the folks off food stamps.

    November 25th, 2012 at 12:32 am

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