Consumers continue to get better handle on debt even as borrowing increases

In recent years, consumers have been far more conscientious in attempting to get their credit card debt under control and keep it that way, but economic conditions and finances have led many to increase spending in the last few months.

Discover Financial Services, one of the nation’s largest credit card lenders and payment processors, recently revealed that use of its branded cards increased significantly in the three-month period between March and May, according to a report from the Associated Press. In all, the number of transactions it processed during this time increased 5 percent, as did the dollar volume of these purchases, which rose to $26.1 billion. As a consequence, consumer balances themselves expanded an additional 4 percent, increasing to a total of $46.6 billion.

The company generally saw these increases as being part of a continual shift in consumer spending habits, which has seen many increase the amount they put on their cards, or at least the number of times they use them in a given month, for some time now, the report said. In general, as the effects of the recent national recession continue to shrink, consumers are now feeling better about their personal finances. As such, it’s generally agreed that this has led to increases in balances and card use.

“We feel as though there is, let’s just say, improved confidence more broadly, as exhibited by their willingness to pull their cards out of their wallet,” Mark Graf, Discover’s chief financial officer, told the news agency.

Late payments continue to become rarer

That confidence likely also comes from the fact that consumers are continually able to increase the rates at which they make payments into their credit card balances on time, the report said. For its part, Discover saw instances of both early stage delinquency and charge offs decline once again in this three-month period. Delinquency, which is made up of accounts 30 days or more past due, slipped significantly to just 1.91 percent of all balances, from the previous quarter’s 2.79 percent. Meanwhile, the rate at which it had to charge off more seriously delinquent accounts declined to 2.79 percent of balances from 5.01 percent. Both were all-time record lows for the lender.

However, the company also notes that over the next 12 months, it expects both rates to rise at least somewhat, the report said. This is because, as a result of improving credit conditions, it is likewise continuing to broaden its credit qualification standards. This means more subprime borrowers will be allowed to borrow, which could lead to an uptick in instances of both delinquency and charge offs.

Of course, experts have been saying that both these rates would likely increase in the near future for some time now, for those specific reasons, and that has yet to be the case, so it may be difficult to predict when charge offs will begin to grow again on a consistent basis as they move toward all-time averages.

Posted in Finance
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