U.S. Consumer Credit Plummets in April; Credit Cards Fall 11 percent

Continuing a trend of credit frugality, consumers in the U.S. in April paid off more debt than they took on, as total consumer credit outstanding fell for the sixth time in seven months. But moves by banks also kept available credit away from consumers.

The U.S. Federal Reserve said late Friday in its monthly consumer credit report, also called the G.19, that total consumer credit dropped a 7.4 percent annual rate – or $15.7 billion — the second highest decline on record. The previous month’s decline (March 2009 – 7.8 percent) remains the record-holder.

The G.19 does not track debt secured by real estate.

For the seventh straight month, revolving credit – typically comprised of credit card accounts – fell. In April, the Fed said credit card debt contracted at an annual rate of 11 percent. The decline continues a trend of dramatic losses in credit card spending, with March’s decline revised to 11.2 percent and February’s at 13.9 percent.

At the end of April, total revolving debt outstanding in the U.S. stood at $931 billion, 4.7 percent lower than the total at the end of the third quarter 2008, when credit card debt peaked at $976.8 billion.

Total credit card debt outstanding can contract on a monthly basis if consumers pay off their balances at a quicker rate than they make purchases on the cards. U.S. banks have been slashing credit limits over the past two quarters, making less credit available to consumers. But the figure can also drop when banks increase their credit card chargeoffs.

Fitch Ratings said last week that prime credit card chargeoffs rose to an average of 9.66 percent in April, up 51 percent from a year ago. And the most recent Kaulkin Ginsberg Consumer Finance Report, which tracks credit card performance across the largest issuer master trusts, showed a chargeoff rate of 9.10 percent.

“We’re definitely going to see 10 percent chargeoff rates for credit cards this year,” said Kaulkin Ginsberg Analyst Dimitri Michaud. “This could mean as much as $50 billion in credit card chargeoffs entering the third party accounts receivable management space this year.”

Michaud also calculates the total amount of consumer credit at risk of chargeoff or loss on a monthly basis. In March, he said that $33.02 billion was at risk. The number includes all of the credit types tracked by the G.19.

^pullquoteThe most recent Kaulkin Ginsberg Consumer Finance Report, which tracks credit card performance across the largest issuer master trusts, showed a chargeoff rate of 9.10 percent.pullquote^

Non-revolving credit — like that found in auto, student, or personal loans – fell at an annual rate of 5.3 percent in April, according to the Fed. It marks the second-straight significant decline for non-revolving debt, which contracted 0.3 percent in the first quarter of 2009.

Total consumer debt outstanding in the U.S., excluding real estate loans, stood at $2.524 trillion at the end of April.