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Credit Card Debt Stagnant as Consumers Pull Back

25 June 2013 by

Credit Card Debt Stagnant as Consumers Pull Back

When it comes to Americans and their finances, any good news is usually tempered with the not so good news. The latest credit card debt statistics are no different. During the first three months of 2013, we’ve managed to pay down an impressive $32.5 billion in credit card debt. Sounds good, right? It is – until you flip the pancake. That’s less than 7 percent than what we pulled off in early 2012.Other numbers are just as worrisome.

Credit Card Debt

We’re also expected to add another $47 billion in credit card debt before the year’s up – that means in the next six months, we’ll actually be setting ourselves up for heavier debt loads. Remember, the jobs numbers remain stagnant and there are also the new healthcare laws that go into effect at the first of the year. These dynamics – and several others – are worrisome.

The average credit card debt load for consumers is now $6,591 – and climbing. Some experts say we could be seeing similar trends from 2011, which as we know, wasn’t as strong year. We began 2011 with $32.7 billion pay down on our collective credit card balances. Unfortunately, the year come to a close with consumers reacquiring that debt along with an additional $46.71 billion on top of that.

Plus, historically, we tend to pay down our debt in the first quarter because we’re coming out of the Christmas holidays and will stress about debt, make New Year’s resolutions and file our taxes early so that our refunds can be applied to that debt. By the spring, though, we’ve forgotten the sting of seeing the credit card bills after the holidays and we’re back to our typical “buy now, pay later” mindset.

One Step Forward, Two Steps Back

Also, for every step forward, it seems as though consumers take two steps back. Maybe we didn’t learn as much as thought we did from the recession.

A significant decrease in consumer debt is common during the first quarter of the year, when annual salary bonuses and tax refunds kick in. That’s when consumers also shift their focus to paying off purchases made during the holiday shopping season. The fact that we’re already down by 7 percent, along with the realization that it’s the smallest first quarter pay down in five years, suggests the experts might have been too quick to declare Americans in a recovery mode.

It also lends to a report that 25 percent of consumers have less than $100 in their savings accounts and another one half show less than $500 in savings. With the cost of living on the rise, the absence of raises and bonuses, and now, worries about credit card debt, it could be a difficult summer.

Some Progress

We’re still making some headway; it’s just that the setbacks are voiding those steps forward. We still believe credit card debt is acceptable as long as we keep those payments up. We don’t mind the late payments, apparently, because those are on the rise as well.

Financial Literacy

Could the answers lie in financial education? Some experts believe they do. Looking at the numbers, it’s not so far out in left field. Only 14 percent of Americans were able to answer five personal finance questions as part of a financial literacy study last month. The online survey of more than 25,000 adults found that although Americans may not be too smart about finance, we believe we are. The FINRA Investor Education Foundation found that nearly three-quarters of respondents gave themselves high marks for financial literacy.

That ignorance is costing us (remember, we’re making more late payments again on our revolving credit accounts).

Financial literacy is found to be strongly correlated with behavior that is indicative of financial capability,

the report says.

Specifically, those with higher literacy are more likely to plan for retirement and to have an emergency fund, and less likely to engage in expensive credit card behaviors.

FINRA

The FINRA Investor Education Foundation does have some good news, though. Turns out, our ability to at least handle those tough financial problems is improving. During the recession, most of us had no idea what to do next and whether or not we should tackle, say, credit card debt or a new car payment. But we’re still prepared with emergency savings. Nearly half of us have “impulse purchased” in the past 90 days and there are more of us making only the minimum payments these days, many are paying late fees, over the limit fees and sky-high fees for payday loans. So as we might know what to do and what not to do, but we’re still not incorporating those better choices.

So if we know what to do, why aren’t we doing it? That answer is found in the poverty rates, which are climbing quickly. Desperate times call for desperate measures and for too many Americans, not much has changed despite media reports to the contrary.

Wondering what those five questions were on the survey? The first question asked how much, over a five year period and at 2 percent interest, would $100 be if you allowed it to grow? The second question asked with that same account, 1% interest and with a 2% inflation rate, would that $100 be worth? Third question is simple: If interest rates rise, what will typically happen to bond prices? Fourth question was true or false: a 15 year mortgage requires higher monthly payments, but interest paid over the life of the loan will be yes and the fifth question is also a true or false: Buying a single company’s stock provides a safer return than a stock mutual fund.

The answers: 1. More than $102; 2. Less than today; 3. They will fall; 4. True; 5. False

How many did you get right? Have you and your family recovered from the recession? Are you concerned about the triple digit drops in the Dow? Stagnant employment? Share your thoughts with us.

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