Are Americans’ Credit Card Balances:
• Increasing
• Decreasing
• Staying about the same
According to current data from the Federal Reserve) revolving credit debt has declined for the third month in a row. Specifically, revolving credit debt dropped to $995 billion in May 2020, which is the lowest since the great recession’s decline to $833 billion in May 2011. Revolving credit primarily includes not only credit cards, but also personal lines of credit and home equity lines of credit (HELOCs).
Meanwhile, non-revolving credit debt, commonly referred to as installment debt, rose to $3.121 trillion in May 2020, after a dip in April 2020 ($3.111 trillion). Non-revolving debt includes mortgages and auto, student and personal loans.
Revolving credit vs. non-revolving credit
Revolving credit accounts are open-ended agreements that let you borrow money up to a maximum amount (known as your credit limit), pay it back over time, and continue to make more charges and payments while your account remains open and in good standing. You typically have the option to pay off debt in full at the end of each billing cycle or “revolve” it and carry a balance month-to-month with interest charges.
For instance, let’s say you have a credit card with a $5,000 credit limit. You charge $1,000 every month and repay it by your due date. Until you pay off your bill, your available credit will be $4,000. But after your payment is processed, you’ll have access to your full $5,000 credit limit again.
On the other hand, non-revolving or installment credit accounts provide fixed terms where the dollar amount of the loan, interest rate and length of the term are all predetermined. For example, you can take out a mortgage for $250,000 with a 2.75% rate and 30-year repayment term. You’re required to make preset monthly payments toward your loan and once it’s repaid in full, your loan is over.
Here’s the breakdown of revolving credit debt from January to June, 2020:
- January: $1.093 trillion
- February: $1.100 trillion
- March: $1.078 trillion
- April: $1.020 trillion
- May: $995 billion
- June: $992 billion
Here’s the breakdown of non-revolving credit debt from January to June, in 2020:
- January: $3.098 trillion
- February: $3.113 trillion
- March: $3.123 trillion
- April: $3.111 trillion
- May: $3.121 trillion
- June: $3.132 trillion
Bottom line
While revolving debts like credit card balances have declined the past few months, the debt is still near $1 trillion. And as we saw over the last decade when revolving debt went from a low of $833 billion during the Great Recession to a peak of $1.10 trillion in February 2020 — it will likely increase again as the economy rebuilds.
If you’re carrying a balance month-to-month, consider transferring it to a balance transfer card like the U.S. Bank Visa® Platinum Card with a 0% APR for the first 20 billing cycles on balance transfers and purchases. After the intro period, there’s a 13.99% to 23.99% variable APR.
And if you don’t have any debt but have extra money from reduced spending, consider putting it into a high-yield savings account, such as Marcus by Goldman Sachs High Yield Online Savings, that can earn you over 16 times more than the national average APY on savings accounts.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Sources: CNBC and FederalReserve.gov
