We’ve been seeing a lot lately about how revolving debt, such as credit card debt, is on the decline. Many consumers are interested in recovering from their debt, and the current economic climate has prompted many to begin digging out of debt, as well as avoid getting into additional debt. However, it may not just be consumers’ doing that the debt rate is shrinking right now.
Credit card issuers themselves have tightened standards, and so there is less debt being issued in general. On top of that, it is quite possible that charge offs are playing their role. Here is what CardHub.com points out in a press release I received via email:
“When banks write-off the losses on accounts that have defaulted or been charged-off, that debt no longer appears as revolving debt, and therefore is not included in the data the Fed uses to assemble its monthly report,” said Odysseas Papadimitriou, CEO & Founder of CardHub.com and personal finance expert. “There is a tremendous amount of bad debt circulating around, and one must always keep that in mind when examining seemingly positive trends relative to the credit card market.”
It is worth considering this point. Defaults have increased, thanks to difficulty repaying. And once those debts are written off by the banks, they no longer appear on listing of revolving debt. So, while it’s nice that debt is on the decline, and credit card debt specifically is being reduced, it is vital to remember that there may be more at play here than consumers wising up.
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