Category: Credit Cards

The way in which consumers currently deal with credit card debt could soon become a thing of the past.

A recent poll of experts found that 65 percent believe mobile wallet technology – in which payments are completed with near-field communications-enabled smartphones – will become so ubiquitous within the next few years that it will have largely supplanted traditional credit card use and even cash by 2020, according to new research from the Pew Internet and American Life Project. However, another 33 percent say that consumer's concerns about the privacy and security of their payment data will prevent this technology from becoming too popular.

Already, a number of companies are developing and pushing their own mobile platforms and it's expected that a larger number of smartphones will come with the necessary NFC technology embedded within the next year or so.

The financial management tools that may come standard with a mobile wallet program – such as the ability to track spending and move funds around with greater ease – may actually be helpful in allowing consumers to avoid borrowing too much, and possibly even help them find some debt relief.

Despite recent laws designed to prevent young adults from running into credit card debt, it seems college students haven't been doing enough on their own to find debt relief.

Today, 70 percent of undergrads and 96 percent of graduate students have at least one credit card in their own name, and few know how to properly manage their accounts, according to a study entitled Financial Literacy and Credit Cards: A Multi Campus Survey, published in the International Journal of Business and Social Science. About 36 percent of college kids have two or more credit cards in their name.

Just 9.4 percent of those polled said they pay their balances off in full at the end of every month, and very few actually knew the cost of their accounts, the report said. Only 14.6 percent knew the interest rate on their card, while 24.3 percent and 29.2 percent claimed knowledge of their late payment and over-balance penalty fees, respectively. Altogether, only about 10 percent said they knew all three.

The Credit CARD Act requires consumers under the age of 21 to either obtain an adult co-signer on their account or provide proof they can afford a credit card on their own.

Americans have been far more conscientious about their attempts to avoid falling behind on their credit card debt in the past few years, and that trend is expected to continue throughout the year even as balances grow.

Consumers' credit quality will likely improve this year, as charged off credit card accounts are expected to drop by between 15 and 20 percent to a new total of just 4.5 percent of all balances, according to new data from Moody's Investors Service. However, this rate of improvement is well below the one seen last year, when defaults dropped 40 percent.

And even as more consumers find debt relief by making increased payments and dodging charge offs, it's also believed that balances will continue to grow as card use expands, the report said. While in many cases consumers have switched their habits so that they use their cards but pay off their balances at the end of the month, it's believed debt totals will increase some 5 percent by the end of the year.

Consumers have been far more conscientious about paying off debts in recent years, but experts say both balances and defaults must hit bottom and begin growing again at some point.

While consumers continue to feel better about their finances and the economy in general, many seem to still be cautious about once again dealing with credit card debt.

The amount of money being borrowed on credit cards nationwide slipped once again in February, this time falling to a total of $798.6 billion from January's total of $800.8 billion, according to the latest monthly statistics issued by the Federal Reserve Board. That's a decrease of 3.3 percent, following January's slightly larger drop of 4.4 percent from December's total.

But at the same time, borrowing increased overall once again, as consumers continued to tap lenders for financing on nonrevolving credit – that is, installment loans for things like auto financing and education costs, but not including mortgages, the report said. In all, this type of borrowing rose 7.7 percent in February, to a total of more than $1.72 trillion.

Experts had noted that increases in consumers' borrowing on credit cards seen at the end of last year bucked recent trends toward trying to find debt relief, but also cautioned that it was likely the result of many using their cards to finance their holiday shopping.

The rate at which consumers fell behind on their outstanding credit card debt and other balances slipped in the fourth quarter of last year, as consumers were once again more conscientious in their efforts to reduce debt.

Delinquency rates on outstanding balances across eight different loan types slipped to 2.49 percent in the final three months of 2011, from 2.59 percent at the end of the third quarter, according to new data from the American Bankers Association. That is the lowest rate for loan balances 30 days or more past due since 2008.

Meanwhile, delinquencies on credit card balances slipped once again as well, to 3.17 percent from the previous quarter's 3.25 percent, the report said. That is the lowest total seen since 2001.

Since the end of the recent recession, consumers have changed their borrowing habits considerably and are now far more likely to seek debt relief and avoid carrying a balance from one month to the next.  However, some experts caution that delinquencies will soon bottom out, meaning they may increase again toward all-time historic averages.

As Americans continue to be more conscientious in their efforts to pay down their outstanding credit card debt and other loan balances, lenders believe they will be in a better position to continue broadening lending standards.

Credit risk professionals expect that they will see declines in delinquencies across nearly all loan types in the next six months, and as a consequence will keep expanding their efforts to offer more lines of credit, according to the latest quarterly survey from the credit scoring firm FICO. For example, 68 percent of respondents to the poll said they expected credit card delinquencies to either stay the same or continue declining in the next six months, an improvement from the previous quarter's 61 percent. That's also the lowest rate seen since the second quarter of last year.

Consequently, 71 percent of credit issuers believe they will give out enough new credit cards to satisfy consumer demand during the next six months, the report said.

Consumers have been trying to reduce debt for some time now, having changed borrowing and repayment habits during and following the recent recession.

The economic effects of the recent downturn continue to fade, which is good news to most consumers. But at the same time, rising prices for necessities may be creating more concern for those looking to avoid credit card debt.

Unemployment rates have taken a considerable tumble and a number of other improving economic factors have enticed consumers to start spending more in recent months, according to a report from MSNBC. However, at the same time, some of that spending may be driven by rising prices for necessities like gas and food, and that can have an adverse effect on consumers.

As spending has risen, the rate at which consumers are contributing a portion of their disposable income to savings has fallen in recent months, and consumers are now taking on more credit card debt to help cover the increased prices, the report said.

However, experts also believe that the recent recession changed consumers' attitudes toward dealing with and making efforts to find debt relief, and that has prompted many to alter their credit card habits. Now, many may spend on those accounts, but then pay them off in full at the end of every month.

Americans are still being more cautious about carrying credit card debt from one month to the next, even as they continue to expand their credit card use.

Over the last two years, the purchase volume on consumer credit cards issued by the nation's seven largest lenders has expanded 7.6 percent and 9.7 percent, respectively, but at the same time, the balances carried on those accounts has fallen, according to a report from Fitch Ratings. In 2010, consumers' credit card balances slipped 8 percent, and another 1.6 percent in 2011, as borrowers looked for more ways to find debt relief.

This change comes because consumers, eager to reduce debt and get their accounts under control, are now focused more on becoming what are known as "transactors," those who use credit cards in their everyday lives but pay off the balance every month, the report said. In the past, many had been known as "revolvers," those who use their cards but carry a balance from one month to the next.

Consumers' balances have been falling for much of the last two years, with only slight upticks seen around the holiday seasons, which experts say happen every year.

While many consumers are worried about their finances and focusing on paying down their credit card debt as a result, new data suggests they're still prioritizing another type of loan over their outstanding balances.

Consumers who were struggling financially in 2011 were more likely to make sure they were current on their auto loan payments than their credit card or mortgage bills, according to a recent report from the credit monitoring bureau TransUnion. In all, just 9.5 percent of borrowers were delinquent on their auto loan bills while keeping current on the other two lines of credit.

By comparison, 17.3 percent of borrowers let their credit card payments fall behind as they kept up with their auto and home loans, and 39.1 percent allowed their mortgage payments to slip into delinquency while focusing on their balances and car loans, the report said.

Experts have noted that consumers may be more likely to fall behind on their mortgage payments because they see having the spending flexibility afforded by credit cards as being more important in their day-to-day lives. They may view having their cars, which are often necessary to go from one place to another with ease, similarly. Those struggling under these constraints may want to seek debt consolidation to get their problems under control.

Even as credit card lenders are now increasing marketing efforts for rewards accounts that come with very generous introductory offers, many consumers may still be too cautious about dealing with credit card debt to take full advantage.

Some new rewards card offers are now worth more than $1,000 in points, but in many cases, consumers just aren't biting, according to a report from the Wall Street Journal. The recent recession may have played a major role in reshaping consumer borrowing behavior, making many more cautious of opening accounts that will lead to larger amounts of debt. And while some consumers are indeed spending more on their accounts, many still don't carry a balance from one month to the next.

"As we come out of this recession, most of the increase in spending we've seen has come from mass-affluent customers," Mark Ford, a senior vice president at PNC Financial Services Group, told the newspaper.

Consumers have been conscientious in their efforts to find debt relief in the wake of the recession, leading to falling balances nationwide, as well as fewer instances of both delinquency and default.