Debt Free

The credit card debt statistics for the U.S. are staggering. Once a country that prided itself on being industrious and saving money, U.S. citizens have piled up huge amounts of consumer debt, a large portion of it on those little pieces of mag striped acrylonitrile butadiene styrene that we love so dearly. According to the latest consumer debt debt statistics, released on March 7^th, 2008 by the Federal Reserve Bank, U.S. consumers are indebted to the tune of over $2.5 TRILLION!!! Of that huge figure, almost $1 trillion, actually $947,400,000, is revolving consumer debt. Ouch!

Interestingly enough, we are going deeper into debt at a highly disproportionate rate. According to the same Fed report, overall consumer credit increased at an annual rate of 3-1/4 percent in January, revolving credit jumped at an annual rate of 7 percent, and non-revolving credit increased at an annual rate of 1 percent.

Think about that for a second. U.S. consumers are increasing their levels of revolving debt at a rate that's 7 times greater than their level of non-revolving debt. Non-revolving debt is for loans that are taken out once, then paid down over time, such as car loans and mortgages. Revolving debt is an account that can be borrowed against and then repaid repeatedly, such as general credit and store credit cards. That means Americans are increasing their levels of debt for major purchases at a level far below that of inflation, while their debt levels for credit card purchases are forging ahead at levels almost double that of the inflation rate.

This is problematic for consumers on a few levels. One is that revolving accounts tend to have far higher interest rates than non-revolving accounts. This means consumers are spending a larger percentage of their money on something for which they receive nothing in return. Actually the latest Fed consumer debt statistics indicate that as of December 2007, the average credit card interest rate was 12.16%. As a way of comparison, the average 48 month new car loan was only 7.59% (corrected from the Jan, 08 report), and the latest 30-yr fixed mortgage interest rates (according to Bankrate.com) were lower still, at only 5.73%.

Who are we borrowing this huge amount of money from? Well, the usual suspects, of course. The largest credit card issuers, in order of outstanding credit are:
Bank of America
JP Morgan Chase
Citi
American Express
Capital One – Apparently, they are in your wallet!

Eveybody's Not Really Drowning in Credit Card Debt!
Although you may feel as though you're right in there with everyone else, drowning in credit card debt, it's actually not true. According to the U.S. Federal reserve, just over 50% of U.S. consumers either have no credit cards (GASP!), or pay off their entire balance every month. Furthermore, according to FICO, the folks that bring you the credit scoring system, 40% of consumers regularly carry a balance of $1,000 or less. FICO also reports that only 15% of credit card users regularly carry a balance of over $10,000.

Of concern for some consumers is that the credit card issuers are willing to let consumers have so much credit available. Credit balances are increasing, but credit limits are increasing even faster. The aggregate credit card limit is now $19,000. This actually helps your FICO credit score because if you have higher limits as a percentage of your outstanding balance, your credit utilization score will be lower. A lower credit utilization score will raise your credit score. However, this gives consumers the ability to charge absolutely huge amounts at a relatively high interest rate, something that's not good for their personal finance picture as a whole. Thankfully, relatively few consumers actually do this, but it could spell problems ahead for the economy if the trend changes.

According to FICO the typical American has 9 credit cards of all types, including gas cards, store cards and such cards as Visa and Master card. If you cross this with the Fed information that about 25% of the population has no credit cards, that indicates a small percentage has about a dozen cards, which I'm sure most financial experts would agree is far too many.

Hopefully these credit card statistics will give you a bit better understanding about the state of credit cards in the U.S. and where you fit into the picture.