Consumers renewed efforts to slash credit card debt

Many Americans have been putting in conscientious efforts to reduce their outstanding debt obligations, and after a slight uptick in credit card borrowing in August, returned once again to their more frugal ways in September.

Borrowers significantly reduced their credit card debt in September but still leaned heavily on non-mortgage installment loans, driving the amount of total outstanding consumer credit to yet another all-time high, according to the latest monthly statistics from the Federal Reserve Board. In all, borrowing increased 5 percent, though that rate of growth was down from the 8.2 percent observed in August.

Credit cards and related statistics

Consumers cut their credit card debt 4.1 percent in September, and balances outstanding fell to a total of $852 billion from the $854.9 billion in August, the report said. Apart from a larger uptick back in May, which led balances to rise to $858.8 billion, the current levels are more or less in line with those seen throughout most of the year, and may indicate that consumers’ appetites will keep outstanding credit card balances near their current levels for some time.

Further, it seems unlikely that these statistics will begin to approach the lowest total owed by consumers in the last several years, when balances stood at just $829.5 billion in December 2005, the report said. At this point last year, credit card debt totaled $847.7 billion.

Interestingly, when it comes to credit cards, the most recent statistics show that those carrying credit card debt are also now paying less in interest than they have in quite some time, the report said. Through the end of August, the average interest rate charged to consumers’ credit card balances was 11.95 percent, down somewhat from the 12.06 percent observed at the end of the second quarter.

However, when it comes to accounts which were actually assessed interest charges in August, there was actually a significant uptick in the amount charged to borrowers, the report said. That rate increased to 13.22 percent, from the previous quarter’s 12.76 percent, as well as the 13.04 percent observed at the end of March. On the other hand, it has yet to even begin to approach the rates charged when the effects of the recession were still being felt. At the end of 2010, accounts assessed interest paid a rate of 14.26 percent on their balances.

Non-revolving credit continues to rise

In keeping with trends seen for much of the last several years, the amount of debt owed on installment loans, such as those for auto purchases and education financing, but not counting mortgages, ticked up another 9.2 percent in September, after a 9.1 percent jump in August, the report said. This once again set the all-time high for the amount owed on these types of balances, which now stands at nearly $1.89 trillion, up from August’s $1.87 trillion. The last point at which this type of borrowing declined on a month-over-month basis was between July and August, 2011. At the same point last year, Americans owed less than $1.75 trillion on these balances.

As usual, a large portion of the increase in nonrevolving borrowing came as a result of Americans seeking federal student loans, the report said. In September, the amount owed on these balances climbed to $509.5 billion, from the previous month’s $495.7 billion.

That was yet another all-time high, as this type of borrowing has surged in the past two or three years, the report said. By comparison, federal student loan balances owed in September 2011 stood at just $398.5 billion, up from just $272.6 billion on a year-over-year basis.

Consumer caution required

While Americans made more concerted efforts to cut credit card debt in September, that trend isn’t likely to last long. With the holidays looming, it seems very likely that borrowing will tick up significantly in the coming months, particularly in November and December. That surge in card use is then typically reflected by an increase in instances of delinquency and default in the first few months of the new year, as borrowers grapple with their added debts and try to get their finances back under control after the hectic shopping season.

High debts and late payments are two of the factors that can cause significant issues for borrowers who are trying to keep their credit scores healthy. However, another potential way in which you may be able to do so is by ordering a copy of your credit report, and checking it over closely for any unfair markings. These entries can drag down your credit score, but working with a credit repair service may be able to help correct the issue.

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