Thursday, March 11, 2010

Worse than we thought -- credit card edition

For a while it looked like the one good thing about the economic downturn was that it was getting people to pay down their credit card debts. Now, according to Felix Salmon, we may have to find another silver lining:

Total credit-card debt outstanding dropped by $93 billion, or almost 10%, over the course of 2009. Is that cause for celebration, and evidence that U.S. households are finally getting their act together when it comes to deleveraging their personal finances? No. A fascinating spreadsheet from CardHub breaks that number down by looking at two variables: time, on the one hand, and charge-offs, on the other.

It turns out that while total debt outstanding dropped by $93 billion, charge-offs added up to $83 billion — which means that only 10% of the decrease in credit card debt — less than $10 billion — was due to people actually paying down their balances.

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