Consumers Made Beneficial Credit Card Changes During Recession
A new Federal Reserve study shows the devastation of the recent recession on family finances. The average family’s net worth dropped almost 40 percent between 2007 and 2010–from $126,400 in 2007 to $77,300 in 2010. The report estimates the recession eliminated 18 years of savings and investment.
But when it comes to credit cards, consumers seem to have made a number of positive changes during this tough financial period.
- Fewer families carried credit card debt during the recession. Less than 40 percent of families (39.4 percent) carried a credit card balance in 2010, down 6.7 percent from 2007. The highest and lowest income groups were less likely to carry a balance on their cards.
- The amount of the balance carried on credit cards also declined. The median balance in 2010 dropped 16.1 percent in that three-year period to $2,600, while the mean balance dropped 7.8 percent to $7,100.
- Families carried fewer credit cards during the economic downturn. A total of 32.7 percent of families had four or more cards in 2010, down from 35 percent in 2007. The percentage of families that carried two or three cards also fell.
- The median credit limit on bank credit cards fell 20.6 percent from $18,900 to $15,000.
- The study also showed that 32 percent of families do not have a credit card.
These trends in credit card practices are beneficial to consumers. They show more cardholders are using their cards responsibly–paying off the balance in full on time each month. But we need to keep in mind that some of this drop in credit card debt was forced by banks and credit card issuers. They reacted to the lending crash and government regulations by closing accounts and cutting credit limits. They also put a freeze on lending and opening new accounts except for people with excellent credit.