Declining American Credit Card Debt Totals

For more than thirty years, the credit card debt bill for all Americans has gone in only one direction: up and up and up. Indeed, most commentators on economic conditions have warned that the financial strength of the United States will inevitably suffer as a result since other nations examine the solvency of our citizens as an indicator of the health of the overall economy. Still, regardless of such very real concerns, our countrymen and women continued spending and attracting credit card debt like there was no tomorrow. Monetary analysts had reason to worry that such reckless and unchecked purchasing habits would continue to expand the unsecured revolving credit card debt loads at the same rate of the past decade until the nation’s credit ratings hit bottom and our financial system collapsed.

Well, looking at the credit card debt figures for 2009, it appears that the wavering faith in the ability of United States households to alter their more destructive behaviors has been misplaced. All of sudden, without clear cause – and during the relatively flat economic growth that followed the recession, at that – the total amount of the unsecured credit card debt sums owed to creditors fell sharply. Headlines trumpeted a decline of more than ten percent, and, even though such calculations include corporate write offs, consumer actions accounted for a surprising percentage of the credit card debt drop.

Whenever economists talk about the money owed to credit cards, they’re essentially adding together all of the individual balances owed to unsecured lenders who must regularly report their holdings to agents of the United States government. As people pay back the money borrowed, the balances will go down, of course, but the credit card debt totals will also show signs of decrease whenever the lenders charge off unpaid accounts in order to gain the tax benefits. The Internal Revenue Service quietly encourages corporations – so long as they are otherwise running a sizeable profit – to formally discharge their credit card debt holdings.

Once a company announces to the government that they have reason to believe that a consumer has no ability or intention of every satisfying their legally held credit card debt accounts, they can then deduct the amount of the debts from the gross earnings and thereby be liable for a significantly smaller amount of taxes. With that understood, what’s so remarkable about this recent decline in the overall credit card debt has been the relatively minimal charge off totals. From January to April of 2009, fewer than eighteen billion of the sixty five billion dollar reduction in unsecured burdens were even partially the consequence of credit card debt charge offs through corporations.

Writing off credit card debt accounts that do, after all, still exist and had only temporarily disappeared thanks to creative accounting practices might lower the credit card debt bills for the United States on paper, but the artificial elimination of delinquent loans actually suggests a greater problem. In fact, once the loans have been charged off, the borrowers are that much closer to an eventual credit repair and the restored FICO scores sufficient to take out even more credit card debt. The same holds true for equity mortgage loans or any similar consolidation program that switches unsecured debt from revolving credit lines to a lien on tangible property. Second mortgages and credit lines are considerably more difficult to obtain following the recessionary decline in property values, but the most successful companies can still manage to technically erase credit card debt by transferring the balances to the title of a residence should enough equity still exist. It counts as an erasure of credit card debt accounts, but it could lead to additional deficit spending once the balances return to zero.