Consumers are making credit card payments — not as well as we would hope, but not any worse for the consumer spending binge of the last two months. That’s the picture from today’s reports from credit card banks. There was a slight decline in 30-day delinquencies, while charge-offs increased at some banks and declined at others. While in a way this is good news, the level of delinquencies and charge-offs is still bad news, showing that consumers aren’t keeping up with their commitments. Charge-offs, the best measure of the cost of credit card delinquencies to banks, are still at unsustainable levels, hovering around the 10 percent (annualized) range, based on the reports that have come out so far.
If the state of consumer credit card payments is showing a slight improvement, it is mainly because consumers are getting out of the credit card habit. If “pay later” is the credit card mentality, debit cards are more likely to lead people to “buy later,” an approach that makes them more likely to save enough to make credit card payments. This way of thinking may affect the credit card purchasing decisions of consumers who use both debit cards and debit cards, a group that now includes about half of U.S. consumers.
It is hard to make direct comparisons from month to month or year to year in credit card statistics because the role of credit cards in the economy is changing so rapidly. This year, many banks have stopped charging over-limit fees, and since over-limit fees were sometimes included in their entirety in the minimum monthly payment, the elimination of the fees could lead to a substantial increase in on-time payments. The hardest minimum payment to make on a credit card is the one for the maxed-out card with fees added on top. If this is what is happening, it does not necessarily indicate larger payments or a greater ability to pay on the part of consumers.