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Consumer credit card balances were largely unchanged in July, according to the latest consumer debt data from the Federal Reserve.
The latest Fed data shows that consumer revolving debt fell at an annualized rate of 0.35% in July, leaving Americans’ outstanding consumer credit card balances at $994.7 billion. It is the lowest that revolving credit balances in the U.S. have been since August 2017.
It is is the second straight small monthly decline, following a 2-percentage-point drop in June. Before that came an unprecedented three-month stretch of declines, spurred by the onset of the COVID-19 pandemic. Balances fell by an annualized 28% in May, a record 64% in April and 28% in March. (Note: All of these percentages are annualized, meaning they represent what the decline would look like if it continued over a year rather than reflecting the drop in a single month.)
This page is devoted to tracking Americans’ credit card use each month. We update it regularly, looking at how much debt people have, how often they carry a balance month to month, how often they pay their credit card bills late and more.
Number of cardholders carrying a balance rises slightly in Q1 2020
Job No. 1 for anyone with a credit card is to pay that balance off in full at the end of each month. But we all know that life happens, and that means that it’s not always possible to pay off your credit cards each month. That’s especially true in the wake of the Coronavirus outbreak.
Unfortunately, most people with an active credit card account don’t always pay their bills in full. According to data from the American Bankers Association, 45% of credit card accounts carried a balance at some point in Q1 of 2020, 32% of accounts were active but didn’t carry a balance and 24% of accounts were dormant for the quarter. The number of accounts that carried a balance was up a half of a percentage point in the first quarter, while the percentage of those who did not revolve a balance was largely unchanged.
While it’s great news that we’re not seeing more growth in the number of people carrying balances, the fact that so many people carried credit card debt in the generally good economic times of late 2019 is troubling. That’s because it means that they probably were not putting enough money for when those good times turn bad. For millions of Americans, that has happened in March or April of 2020 — and depending on how long and how severe the impact of the Coronavirus ends up being on our economy, things could get far worse before it gets better.
Card debt plunges as COVID-19 takes a toll
Americans’ credit card debt was at a record high in February. The coronavirus outbreak changed all of that.
The Federal Reserve shows that revolving debt (made up mostly of credit card debt) now stands at $994.6 billion, as of July 2020. It’s the lowest since August 2017. However, it is still high by historical standards and light years beyond the $409 billion that we saw 25 years ago in July 1995.
Card debt showed hockey-stick growth until the financial collapse in 2008, when revolving debt fell from more than $1 trillion in the summer of 2008 to $832 billion in April 2011. But, as you can see in the chart below, the hockey stick returned.
It is anyone’s guess as to how long the recovery will take, how far credit balances will fall during the downturn and — perhaps most important — how quickly consumers will recover once the outbreak subsides. However, I think it is likely that we won’t see historic decreases like the ones we saw earlier this year again unless a resurgence in COVID-19 forces another shutdown.
APRs rise slightly for the first time in months
After several years of relative stability after the Great Recession, credit card rates have climbed steadily in the past few years, driven largely by the eight rate increases that the Federal Reserve has implemented since 2015. The Fed reversed course in late 2019, implementing three rate decreases in recent months. After those cuts, it appeared that the Fed was likely done with tinkering with rates, but that was before the emergence of the Coronavirus outbreak. In a two-week period in March, the Fed lowered rates 1.5 percentage points, an enormous change in a short amount of time, and one that drove new card interest rates lower for several months.
Here’s where credit card APRs currently stand …
The latest CompareCards.com data on credit card APRs shows that the average APR with a new credit card offer is 19.28%, with the average card offering an APR range of 15.68% to 22.87%, with your rate varying based on your creditworthiness.
The latest Federal Reserve data showed that the average APR for all credit card accounts fell to 14.52% in the second quarter of 2020. Meanwhile, APRs for cards that are accruing interest fell — again, likely thanks to the Fed — down to 15.78% from 16.61% a quarter ago.
Of course, you can make those interest rates a moot point by paying your card debt in full, but far too few people do. Meanwhile, those who carry a balance have seen their rates rise.
Here’s data from the Fed showing changes in the average APR for people who have accrued interest. It’s not pretty.
Credit card delinquencies fall in Q2
According to the most recent delinquency data from the Fed, the 30-day delinquency rate (or the number of folks who are currently at least 30 days late with their credit card payment) fell to 2.42% in the second quarter of 2020. That’s a significant drop from Q1 of 2020 and marks the lowest level seen since Q1 of 2017. The current rate is also quite low by historical standards — the average since the Fed began collecting that data in 1991 is about 4% — and it’s far below the record 6.77% rate we saw in April 2009, in the depths of the Great Recession.