Since the end of the recent recession, consumers have generally been far more cautious in their approach to taking on credit card debt, and that trend continued once again in July.
The overall amount of credit carried by consumers across both credit cards and non-mortgage installment loans slipped 1.5 percent on an annual basis in July to slightly more than than $2.71 trillion, and down from June’s total of just less than $2.71 trillion, according to the latest monthly statistical release from the Federal Reserve Board. However, that decline was driven by a large drop in borrowing on credit cards.
In July, outstanding credit card debts slipped to $850.7 billion, the report said. That’s down 6.8 percent on an annual basis and a decline of $4.8 billion from June’s total of $855.5 billion. The July total is more or less in line with norms seen for most of the last year, and the higher numbers seen in May and June were the result of a huge spike of about $9 billion in the former month.
Further, interest rates on those accounts continued to fall, the report said. Interest rates on all credit card accounts controlled by commercial banks averaged 12.06 percent in May, the latest month for which statistics were available, which was down from the 12.34 percent seen at the end of the first quarter. Meanwhile, the average APR on accounts assessed interest charges slipped to 12.76 percent from 13.04 percent.
However, even as consumers fought to get their credit card balances under control, they still continued to take on nonrevolving debt, the report said. This kind of borrowing is defined as installment loans excluding mortgages — primarily consisting of auto and student loans — and increased 1 percent on an annual basis in July, rising to a total of more than $1.85 trillion. That’s also up from June’s total, but very slightly.
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Consumers have successfully slashed their outstanding credit card balances significantly in the last few years, as many may want to avoid the kind of issues that plagued them during and immediately following the recent recession. As such, balances have fallen significantly, but so too have instances of delinquency and default, which also indicates that consumers are more capable of making their monthly payments on time and in full.
Image: net_efekt, via Flickr