In the world of finances, old wounds appear to be healing. Well, not completely, but there’s reason to be optimistic about the credit card debt that many Americans accumulated during the recession. According to recent data from the American Bankers Association (ABA), Americans are meeting their payments at record pace. In the first quarter of the year, late payments fell to 2.44 percent of all accounts. This is a large decline from the previous quarter’s 2.60 percent and the 15-year average of 3.82 percent.
Shift in Attitudes
The impressive statistics above refer to accounts that were delinquent by 30 days or more. On the more serious end of the spectrum, the Federal Reserve Bank of New York reported that 8.5 percent of credit card debt was 90 days past due in the first quarter of this year. This may still sound like large portion of accounts, but it’s actually the lowest it’s been since 2003.
Times are certainly changing for credit cards. James Chessen, ABA’s chief economist, believes that more consumers are treating their credit cards as a payment vehicle, rather than a form of debt they carry around with them. The association reports that during the last quarter of 2013, average spending increased, and average balances were down by nearly 5 percent. People are growing more interested in using credit cards to securely and conveniently pay for transactions, but they don’t want the potential downsides of carrying balances month-to-month. This is a smart move by consumers, as carrying balances can lead to interest charges and higher interest rates.
Carl Tannenbaum, chief economist at financial services company Northern Trust, suggests that money used to pay off credit card debt can now be used to boost the economy.
When people do use plastic, they’re increasingly selecting rewards cards as their card of choice. The number of active rewards cards picked up by 18.4 percent, from the fourth quarter of 2008 to the fourth quarter of 2013. This indicates that people can be enticed to spend with the right incentives in place.
The Future of Credit Cards
The fact that consumers with credit cards are being smarter about their finances is reason to cheer. Many of those who lived through the recession have moved forward with a more balanced view of the role credit cards play in their lives. They use it, but don’t depend on it. When consumers realize that they can pay off their balance and choose to do so, that can only be a good thing for the economy and the credit system.
Charmaine Ng is the Communications Coordinator at Credit Karma. When she isn't writing her way through life, you can find her reading about the latest in entertainment and watching television almost every night of the week.