Consumer Credit Use Fell for Fifth Straight Month in June There's no more telling statistic about the structural changes occurring in the U.S. economy than Americans' stance toward debt: They're reducing it, and that trend continued in June as credit-use fell another $1.3 billion, an annualized rate of 0.7%, the Federal Reserve announced Friday. That marked the fifth consecutive monthly drop in consumer credit, and the 19th decline in the past 21 months.

However, the June drop was less than had been predicted by a key survey. Economists polled by Bloomberg had expected consumer credit to fall by $5 billion in June, after declining a revised $5.3 billion in May, a smaller contraction than the initially-estimated $9.1 billion decline.

Over the past 12 months, total consumer debt has fallen 3.5% to $2.418 trillion from $2.506 trillion in June 2009. However, that's less than the 3.7% year-over-year contraction rate recorded in May.

Consumers Keep the Plastic in Their Wallets

Once again in June, all of the nation's consumer debt reduction occurred in the revolving debt category, which includes most credit credits. Revolving debt fell by $4.5 billion or to $826.5 billion. Non-revolving debt, which includes most auto loans, personal loans and student loans, increased by $3.2 billion to $1.592 trillion.

A perfect storm of factors coalesced during the recent recession that resulted in steadily declining consumer credit balances. Stagnant incomes in many job segments, the loss of more than 8 million jobs from the workforce, reduced credit lines, and higher interests rates charged by banks and other card issuers have prompted Americans to reduce credit balances over the past two years.

Most economists view the declining balances as a positive long-term development, as Americans over-consumed in the previous decade, resulting in high -- and in many cases unsustainable -- credit card balances.

Short-term, however, the Great Credit Card Pay-Down will lower U.S. GDP growth, as it will constrain consumer spending, which accounts for 65% to 70% of GDP.

However, June's credit report was not without a qualified ray of light. For example, non-revolving debt rose for the second straight month -- but that's too short a period to consider it a trend, or to conclude that were seeing the sort of sustained increase in auto loans, personal loans, etc., that historically accompanies an expansion.

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If bank would stop there greed and lower the Interest Rate on card to 5% people would use them more bank still dont get it they have max out there profit if bank would sell all there high rise office off witch they dont need and plane and boat and cars ect they would not have to rip people off with high interest rates little profit better then NONE

August 07 2010 at 10:42 AM Report abuse rate up rate down Reply

This is based on two basic reasons. 1. people are still scared to spend and are actually trying to save money because of the still weak job market.2. when congress passed the credit card reform bill it allowed all the credit card companies to jack up interest rates and lower spending limits before the bill went into effect. This actually removed credit cards from the spending picture. also some credit card companies are closing inactive accounts with zero balances.

August 07 2010 at 4:47 AM Report abuse rate up rate down Reply

Well, boo-hoo. I just paid off my credit cards and although I will keep them for emergencies I will never carry a balance again. They jacked up the interest rates on all of them and I had an excellent record of payment. I believe that usury was a stoning offense in Biblical times. Bankers should get honest jobs.

August 06 2010 at 6:18 PM Report abuse +3 rate up rate down Reply

Some how this is a bad thing? People are just relearning how they should use there credit. Shopping and movie going and dinners out on the town are on longer on the list of things to use a card for. This means less cardholders going belly up and hanging the debt on other consumers or the tax payer.Businesses will just have to readjust there thinking and plan for a smaller market.In the long run its better for all concerned..

August 06 2010 at 5:34 PM Report abuse +3 rate up rate down Reply