Credit research company TransUnion said that credit card debt hit an eight-year low in the second quarter of 2010. It is likely to go lower.
The average combined debt of those individuals fell to $4,951 for the period. In the same quarter a year ago, that figure was $5,719. TransUnion reported that the number was the first time average debt had been below $5,000 in any quarter since the first three months of 2002.
The percentage of credit card owners with bills past due for 90 days dropped to .92% from 1.17% in the second quarter of 2009.
There are a number of reasons that the average debt number will continue to drop. The first is that consumers have lost the appetite, that they regained briefly in the first part of 2010, to buy products and services through borrowing. Many polls show that the average person believes that the recession is not over. As a matter of fact, even some economist believe that the US economy is set of another downturn.
The impression that the recession is not over is re-enforced by two critical trends. The first is that unemployment is not dropping. Recent weekly jobless claims released by the government show that the level of joblessness may actually be on the rise.
And home values have continued to fall. Americans now believe in greater and greater numbers that their homes will never be a source of equity. Many people know that they will have to pay their mortgage holders if they sell their homes to offset their underwater loans. That, in and off itself, is enough to keep people from adding debt and attempt to bring down what financial obligations they have.
The news about improved credit quality among card holders would seem good for firms like MasterCard (NYSE: MA) and Visa (NYSE: V). It means that their earnings will not be plagued by write-offs. The news is not entirely positive. The number of transactions that they process is likely to drop as consumers become more frugal and with that their fees will diminish as well.
Douglas A. McIntyre
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