Has Personal Debt REALLY Been Going Down?

There has been a lot of talk lately about how the recession has resulted in more people paying down debt. While the savings rate did go up during the recession, some are starting to wonder if debt really decreased as much as we thought. This is because the numbers used to reflect the credit card debt situation in the country are based on how much the credit card companies report. At CardHub.com, a critical look at the data is offered, and a representative pointed this out to me:

The change in consumer credit card debt cannot be evaluated in
isolation without also looking at charge-off data (bad debt that while
written off the books, consumers are still liable for). Once the amount
in charge-offs is considered, consumer credit card debt actually

When you look at it this way, it appears that consumer debt actually increased in various quarters, including back to 2009, according to CardHub. The story that credit card debt increased for the first time in more than two years in Quarter 4 of 2010 probably isn’t all that accurate, if you agree with the way CardHub interprets the numbers.

Credit Card Debt

Are People Ready to Start Spending Again?

No matter how you decide to crunch the numbers, though, you still end up with the conclusion that Quarter 4 of 2010 saw an increase in consumer credit card debt. Indeed, many agree that the holiday season that just ended marked a shift in attitudes for many consumers: It’s time to start spending again.

Frugal fatigue seems to be setting in, and consumers appear ready to do a little spending. They are becoming more comfortable with the idea of using plastic again, and perhaps even feeling a little better about paying a balance.

Another reason behind the gain in Quarter 4 may be a lack of charge-offs. The fact that aren’t a lot of charge-offs to skew the numbers to look as though credit card debt is decreasing could indicate that consumers are better able to pay their bills. Instead of having to choose to between bills, and instead of skipping credit card payments until they are charged-off, consumers may actually be making payments.

Paying Down Debt

Of course, you shouldn’t let the overall trends affect your own decision to pay down debt. Just because debt is on the rise amongst many consumers doesn’t mean that you should follow suit. If the economy really is improving, there is a good chance that we will see interest rates head higher. Since credit card issuers have already been raising rates (and adding annual fees and other hassles — thanks Bank of America for that), it is safe to assume that rates are about to go even higher. That means that if you want to pay down debt, now is the time to do it. As quickly as you can.