Credit Card Spending Rises, Debt Drops

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Credit card spending is up from last year, according to market-research company Synovate. Their latest data shows that cardholders spent $1,559 on average across all the credit cards in their wallet in 2010 a 6% increase compared with the average of $1,471 that was spent in total during 2009.

According to Synovate, the last time consumers spent more was in the third quarter of 2008, just before the financial meltdown. At that point, the average amount of money spent by consumers for the year was $1,710.

In other related news, a separate study conducted by consumer credit reporting agency TransUnion shows that credit card debt dipped to its lowest level in eight years.  

During the past three months, the average combined debt for bank-issued credit cards fell to $4,951, down more than 13% from $5,719 in the same period a year ago, the credit reporting agency said. It was the first three-month period in which card debt fell below $5,000 since the first quarter of 2002.

Does this mean Americans are getting better at managing their credit?

Not necessarily, says John Ulzheimer of Credit.com. The increase in spending and decrease in debt unfortunately can’t be attributed to consumers learning their lesson, he says.

“Debt is more extensive now,” Ulzheimer explains, pointing out that interest rates have risen to an all-time high. “There’s much more motivation to get out of it.”   

Synovate reported that the average interest rate on existing cards jumped to 14.7% last quarter, up from 13.1% this time last year. Study director Lauren Guenveur says the spike was an unintended consequence of the CARD Act. The CARD Act was signed into law in May 2009, but legislation stipulating that the banks give customers 45 days notice prior to increasing interest rates did not go into effect until February.

“Banks essentially had a small time period where they could still raise rates overnight,” Guenveur explains, adding that many issuers took advantage of the window of opportunity.

The CARD Act has also made less credit available to high-risk consumers, which Ulzheimer says can also be related to the recent data.

“High-risk customers are really the ones on a short leash,” he explains while pointing out that currently a record number of Americans have credit scores below 600.

The decrease in credit card debt can also be affected by an increase in bankruptcies and other debt write-offs that fail to get captured by these types of studies, according to Bruce McClary of ClearPoint Credit Counseling Solutions.

“The data can be affected by a mix of different components,” McClary says, before conceding a consumers’ ability to better manage their credit could be one of them.

Still, Ulzheimer remains positive.

“At the end of the day, the fact that we’re in less debt now is better than news that we are in more of it,” he says.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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