Consumers Keep Paying Off Credit Cards, Building Up Savings
Thursday, October 8, 2009
Consumers continued to retrench in August, with borrowers reducing their credit card debt for the 11th consecutive month, according to figures released by the Federal Reserve on Wednesday.
Revolving credit debt, mostly through credit cards with balances that are not paid off immediately, dropped by an annual rate of 13.1 percent in August to $899.4 billion, the Federal Reserve reported.
Non-revolving credit debt, such as auto loans and student loans, dropped slightly by an annual rate of 1.6 percent to about $1.56 trillion.
Consumer advocates and industry experts attribute the drop in credit card debt to uncertainly over jobs and rising interest rates. Many card companies have increased interest rates in anticipation of a new law that takes effect in February that will limit their ability to raise rates and fees.
"The recession has led to changes in spending and saving habits for consumers," said Travis Plunkett, legislative director for the Consumer Federation of America. "In other words, consumers are starting to get their financial houses in order, and that means reducing their use of credit."
Indeed, the personal savings rate climbed to 4.2 percent in July, according to government data, up from the near-zero levels of just a few years ago.
"Consumers are making rational choices in a down economy -- they're saving more and spending less," said Kenneth J. Clayton, senior vice president and general counsel for card policy at the American Bankers Association. However, he said, "credit cards remain a viable option, but just merely one of many available to consumers."