Garnet Capital Advisors Blog

Americans have changed how they harness credit card debt, a financial consulting firm stated recently, and these new practices could potentially constrain loan sales by reducing the supply of available debt.

Consumers use credit cards differently
On April 29, Strategic Consulting Services, which specializes in mortgages, debt management and business services, asserted that some consumers have changed their approach in response to a challenging environment for borrowers.

More specifically, many are less willing to use credit cards, and those that use them are paying off their balances more quickly.

Fed Data shows falling credit card debt
Federal Reserve data shows this shift in attitudes, according to The Wall Street Journal. Outstanding revolving credit, which contains credit cards, declined by $2.42 billion in February from the prior month. This represented an annualized drop of 3.4 percent. At the same time, total outstanding consumer credit increased by 6.4 percent.

While consumers used their credit cards liberally during the boom years, and pushed their balances higher, they became far more careful once the recession began. This was not a phenomenon experienced in only one type of debt, as the savings rate jumped significantly after the economy stopped expanding.

Consumer behaviors changed with financial crisis
"In the years before the financial crisis of 2008 there was a surge of credit-card borrowing before dropping sharply during at the start of the recession," Ben Kittle, senior financial consultant for SCS, said in a statement. "After the economy hit bottom, consumers began to borrow again, but with a different mindset. The mortgage still gets paid first, but paying off credit card debt became more important since the recession."

Randy Hopper, vice president of credit cards at Navy Federal Credit Union, weighed in on this situation when speaking with The Wall Street Journal. He asserted that many consumers are prioritizing paying off their balances. Hopper stated that tax refunds, bleak weather conditions and shoppers worn out from the holidays have all contributed to this situation.

"They are more considerate of the debt that they are putting on," Hopper told the news source. "They're managing their budgets a little more rigorously."

Even if his observations are accurate, households that have credit card debt owe an average of $15,191 on these cards, according to a NerdWallet analysis of government data. Figures provided by the media outlet suggests that a small number of households are pushing this figure up significantly.

Kittle asserted that credit card companies are employing some creative strategies to keep their earnings up. These firms might face some challenges in doing so, as the market expert asserted that many consumers are quite wary of using credit cards because they are concerned about having their personal information compromised.

If consumers do end up moving away from credit card debt, this development could affect loan sales by lowering the supply of this type of debt.