The Wall Street Journal says that investors are feeling good about credit card debt:
Missed-payment rates on these loans have ticked higher from ultralow levels hit during the pandemic, but they still sit well below the heights reached during past downturns. Over the past few months, the easing of bank stress has helped keep the economy on course, and the recent debt-ceiling deal erased another source of risk.
That has turned investors more bullish on the roughly $300 billion public market for U.S. car- and credit-card debt, known as asset-backed securities.
This is all true. Missed payments have ticked up over the past couple of years but are still much lower than average. People are paying off their credit card debt consistently and on time.
There's a good reason for this: people aren't using their credit cards nearly as much as they used to. Here is the average balance carried on credit cards:
Credit card spending has increased since its low in 2021, but it's still 7% lower than it was before the pandemic. And lower balances mean not just that consumers are being more careful about debt, but that they have lower payments that are easier to make.
In other words, the asset-backed security market is safer but smaller. Will it stay safer if credit card balances continue to grow and personal savings shrink toward their pre-pandemic trends? Good question.
Bottom line: this economic rebound has a long way to go.
"...people aren't using their credit cards nearly as much as they used to."
I don't know about others, but I use my card more often now. Most low-$ cash transactions become c.c. transactions during the pandemic, and I'm still doing it now. I use much less cash than before. But do pay the c.c. balance every month.
The statistic would be more accurate if they included just balances that are accreting finance charges, since that would eliminate folks who pay off their full balance each month vs those who actually use the cards as a source of funds.
I worked for a large finance company that, among other operations, provided funding for many private label credit cards. It is my understanding that some of the folks who worked there use to refer to customer who always paid off their balance as "deadbeats", since they did not earn any money for the lending operation.
I won't cry too hard. They still make money on the transaction, somewhere between 1% and 4% per swipe, which adds up to $100+ billion per year. Card users don't think about it since the merchants pay the card company, but we all pay in higher prices.
Card companies also collect more data on consumers than anyone else. What do they do with that data? Make a lot of money with it.
We just provided funding for the credit card operation, so I don't know how much of the fees received by the issuer we skimmed. I had nothing to do with this business so I only know what I was told. It was all private label cards, like a Sears card, which was only only used at their stores. Retail stores are usually highly leveraged, and it was better not to use their own balance sheet for this.
Many vendors are now charging a fee to use a card, so the cost is becoming more transparent.
3.5% around here, on everything from a latte to 500 gal of fuel oil to heat the house. Not that it costs Bank of America more to process the larger transaction.
First, I find it silly to adjust for inflation here since wages are the thing that actually matters - if you're not making enough, your balance (and revolving balance) is going to be higher. That's only a small quibble as I imagine the data to adjust CC balance for wage (and removing the skewing effect of higher incomes as well as narrowing down only to those who carry CC balances month after month) would be impossible to find. And it would be a small effect anyway (probably).
Second and more importantly: the nickel version is that pandemic stimulus (and decreased discretionary spending on the part of consumers) resulted in a gigantic paydown of CC debt, and once that ended the CC debt levels started to jump back up towards the pre-pandemic trend given greedflation.
FWIW, there's this chart. Again, longer time series is better.