Consumer borrowing rose from non-revolving credit sources, as fewer people are borrowing money by using credit cards. Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA

An increasing number of people are borrowing money, but more people are getting personal loans rather than using credit cards. The Federal Reserve released data that show consumer borrowing rose by several billion dollars in January, but it was from non-revolving credit sources. Credit card use dropped at the same time.

Debt levels rise as consumer borrowing increases

Americans are borrowing money from loan lenders again, and it is reflected in the recently released report by the Federal Reserve detailing economic activity from January of 2011, according to Business Week. The increase in consumer debts in January was fueled by non-revolving credit sources, such as personal loans or auto loans, instead of revolving lines of credit or credit cards. Non-revolving debt increased by $9.26 billion, but consumer debts increased overall by an estimated $5 billion, in the fourth straight month of increasing numbers of people going to loan lenders for credit. The increase was fueled by strong auto sales, according to MSNBC, as the amount of money lent for auto purchases increased for the sixth straight month.

Credit card use falls

Credit card use has been plummeting for some time, as the amount of debt held by Americans on credit cards declined by $4.25 billion. Credit card debt has fallen in 28 of the past 29 months, but it increased in December 2010 for the first time since December 2008. Credit card charge-offs, or debts written off by credit card companies, declined to 7.45 percent for January 2010. Delinquencies and charge-offs have been declining for the past five consecutive months. Consumers appear to have used their plastic to cover a December shopping spree but paid down the balance quickly. Credit card interest rates have been steadily rising as new regulations prevent banks and card companies from applying fees surreptitiously, forcing them to raise fees and interest rates up front.

Student borrowing increases

Part of the increase in non-revolving debts for the month of January 2011 was a $24.9 billion increase in student loans from the federal government. However, students are likely to begin borrowing more from private lenders than from the government in coming years, as the looming federal budget cuts are likely to decrease available capital. The federal budget recently submitted by the House of Representatives cut more than $5 billion from the Pell Grant program, according to the Christian Science Monitor, though the Pell Grant program is expected to run a $20 billion deficit starting next year. A college education is still viewed as one of the most worthy investments a person can make, though the cost has been rising dramatically for years.

Sources

Business Week

MSNBC

Christian Science Monitor

Use of credit cards has risen for the past three months, after two consecutive years of decline. Image: MoneyBlogNewz/Flickr.com/CC-BY

The use of credit cards by consumers has started to rise again after a two-year decline. During the recent recession, fewer consumers have been making as many purchases on credit, and more people have been paying off debts. The credit card industry recently began booming again.

Three straight months of increasing use of credit cards

For three consecutive months, there has been a marked increase in the use of credit cards by consumers, according to USA Today. A new report by the Federal Reserve disclosed that consumer use of credit cards had risen by 3 percent in December. The rise in borrowing amounted to $6.1 billion in personal loans from card companies being utilized by consumers over the last month of 2010. The seasonally adjusted rate for credit card borrowing rose to $2.41 trillion in advance cash, which is likely to grow over the year. Consumer borrowing has increased by 3.5 percent after a 27-month period of decline, including use of credit cards and an increase of 2.8 percent for people taking out auto loans. Fewer people were willing to start borrowing money during the recession.

Years of decline despite rising profits

During the past few months, major credit card companies have begun posting major profits. Visa and MasterCard both posted large gains, despite new fee rules imposed by the CARD Act. The CARD Act, or the Credit Card Accountability Responsibility and Disclosure Act, mandated that credit card companies not raise interest rates on cardholders without notifying them in advance. This has led to the base interest rates of credit cards being raised so the rates higher when people sign up. Buying an Alabama Crimson Tide jersey online could get that much more expensive.

Merchant fees also contribute

Credit card companies are also enjoying the benefits of merchant fees, according to the Washington Post. Some credit card companies have raised fees charged to merchants for swiping the card, which could lead to prices being raised in stores to counter the fees. Customers who made purchases with credit cards rather than with cash also have to pay more in interest thanks to higher prices.

Sources

USA Today

Washington Post

Credit card debt has been declining nearly two years running. The trend drags on economic growth, but helps credit card companies stabilize earnings and losses. Image: Thinkstock

American consumers are steadily paying off their credit card debt. The Federal Reserve reported that U.S. families cut back on credit card use for the 23rd month in a row. Overall consumer borrowing, which includes credit cards and auto loans but not home mortgages, fell at an annual rate of $3.6 billion in July — the 17th decline in the last 18 months. Paying off credit card debt is helping stabilize a lending industry suffering from an epidemic of credit card delinquency. But a prolonged slide in consumer borrowing is a drag on the U.S. economy as it struggles to recover from the Great Recession.

Credit card debt drops with consumer spending

Consumer borrowing on credit cards fell 6.3 percent in July, following a 7.5 percent drop in June. The Associated Press reports that credit card debt has declined for 23 consecutive months — a record run. As American households struggle to repair their finances, economists expect they will keep cutting back on credit card use as long as incomes and employment don’t improve and banks struggling with high loan losses maintain tight lending standards. By borrowing less and saving more, families are helping themselves but hurting the overall U.S. economy, which depends on consumer spending to expand.

Consumers held in check by banks

To minimize their losses during the economic downturn, banks have made credit cards hard to get. However, The Street reports that consumer demand for credit cards remains strong. According to a quarterly FICO survey, new credit card accounts dropped by 17.7 percent during the 12 months that ended last April compared with the previous 12 months. In the same period, credit card applications fell only 3 percent. The Street said the numbers show consumers weren’t allowed access to all the credit they sought. During that time, the total amount of credit available on all U.S. consumer credit cards fell by 12.2 percent.

Credit card companies hire more lobbyists

The decline of consumer borrowing on credit cards is actually helping credit card companies. Debtmerica Relief reports that despite new credit card rules that limit interest rate hikes and penalty fees, credit card companies are becoming more stable as consumers reign in their spending. Credit card companies such as Capital One Financial and Discover Financial Services have seen earnings and losses stabilize. As consumers pay off more credit card debt, lenders are charging off fewer delinquent accounts. This allows them to spend money that was held in reserve to counterbalance losses. They are spending 25 percent more on increased lobbying efforts to influence future changes in federal laws.

The Federal Reserve reported that an unexpected consumer borrowing increase in March is another sign that an economic recovery is underway. Flickr photo.

Consumer credit increased in March 2010, the Federal Reserve reported Friday. The $1.95 billion increase in consumer borrowing surprised economists, who had expected consumer debt to continue a decline that resumed in February after a January spike in money loans. The unexpected March consumer credit statistics mark only the second time the Fed has reported a consumer confidence increase in 14 months. Some believe that consumer spending, making up 70 percent of the economy, is trending to a level that could help strengthen economic recovery.

Consumer confidence on the upswing

News of the March consumer credit increase comes hot on the heels of a Friday Labor Department jobs report announcing that 290,000 jobs were created in April. The jobs increase was accompanied by an increase is the unemployment rate. However, the report said the improved economic outlook is motivating people who had quit looking for jobs during the recession to resume looking for work.

Consumer debt figures a surprise

The increase in consumer credit statistics surprised many economists. Bloomberg reports that a survey of 33 economists had forecast consumer debt in March would drop further from an $11.5 billion decrease reported in February. Projections ranged from a consumer debt decrease of $8.5 billion to an increase of $8 billion. Economists surveyed by MarketWatch expected consumer credit to decline by $4.5 billion in March. The March gain represents a 1 percent rise at an annual rate following a 3 percent drop in February and a 3.2 percent January increase.

Federal Reserve consumer credit statistics

Federal Reserve Consumer credit statistics show that non-revolving debt, including loans for cars and mobile homes, rose by $5.1 billion in March. Bloomberg reports that auto sales in the U.S. rose to the equivalent of 11.8 million annually in March — the strongest performance since August 2009, according to industry statistics. The pace had slowed to 11.21 million in February. Auto sales in March were boosted by Toyota incentives the company offered to make up for record recalls. Ford led U.S. automakers with a 40 percent sales increase. Sales at General Motors increased 21 percent.

Federal Reserve Consumer credit statistics for revolving debt, such as credit cards, fell by $3.2 billion in March. The central bank’s report doesn’t cover borrowing secured by real estate.

Consumer borrowing will fuel recovery

The low rate of personal savings in the United States has aroused a sense of alarm for years. But the Associated Press reports that in the wake of the great recession, economists now say that consumer debt needs to stabilize and grow to prevent derailing the modest recovery under way, although they expect that the rebound will be restrained by tighter credit conditions imposed by many banks.