woman looking worried with handful of credit cardsOver the past several months, several encouraging reports of the decrease in evolving consumer debt have been published. Revolving debt, which consists primarily of outstanding credit card balances, fell by roughly $12 billion in the second quarter of 2010 from the quarter prior, according to the Federal Reserve. But there's just one problem with that, according to new research from CardHub.com: All of that drop and then some was due to banks throwing in the towel on bad loans and charging off delinquent balances.

"The biggest news of all is that it's been widely reported that consumers keep paying down their credit card debt and they have now learned their lesson," Odysseas Papadimitriou, founder and CEO of CardHub, told WalletPop in a phone interview. But, he adds, "It doesn't make sense. There's no way that in the worst economic environment consumers are finding money under their mattresses and paying off their credit cards." Papadimitriou says his company calculated that banks charged off around $21.8 billion in bad loans. In other words, Americans actually increased their collective revolving debt by some $9.8 billion, a figure that's slipped under the nation's radar because of the huge amount of charge-offs.

Papadimitriou says what's going on here is a combination of two things: Americans who can still get credit are increasing their spending, and some of those whose accounts are going delinquent are probably maxing out their remaining cards in an effort to stay afloat. The rate of charge-offs, after dropping a bit late last year, is back on the rise, increasing to 10.8% in the second quarter.

This is bad news for the banks, but it's worse news for the Americans whose debts are being sent to collections and whose credit scores are plummeting as a result, says Papadimitriou. "In one of the worst economic environments you'd expect such significant rates of charge-offs, but what's more alarming is what we saw in the second quarter in that consumers are accumulating more credit card debt," he says. Between the first and second quarters of this year, Americans added to their debt by a whopping 249% over the same time period last year.

Looking ahead, Papadimitriou predicts that Americans will rack up billions more in revolving debt before 2010 draws to a close. Most people will remain in the dark about how bad our debt addiction really is, he says, because banks will just continue writing off their delinquent loans. "You might see the overall number go up only by a billion or two, but that doesn't reflect the true picture," he says. The unfortunate outcome for most Americans will be a further tightening of credit standards as banks look to shield themselves from even sharper charge-off rates by next year.

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