Credit card debt keeps dropping. Banks are on the edge.

Americans are paying off their credit card debt at levels not seen in years. This is good news for everyone except the credit card issuers.

Large card issuers that cater to borrowers ranging from the affluent to subprime mortgages say overall card balances – and therefore corporate interest income – are declining. To compensate for this, issuers are spending more on marketing and relaxing their underwriting standards.

Discover financial services

DFS -0.40%

said in its earnings call last month that the share of card balances redeemed at the end of the first quarter was the highest since 2000.

Capital One Financial Corp.

COF 0.79%

said nearly half of its credit card balances at the start of March had been paid off by the end of the month, which the company described as historically high. The companies’ calculations are based on the credit card balances they put into securities and sold to investors.

Synchrony Financial,

SYF 1.01%

the largest emitter of store credit cards in the United States, payment rates were higher than average before the pandemic.

The card balances of the three companies decreased by 9%, 17% and 7% respectively in the first quarter compared to the previous year.

The results reflect the reverse effect of the pandemic on consumer finances. A year ago, lenders expected to increase delinquencies and many borrowers to turn to credit cards to make ends meet. But then the government intervened, the issuance of stimulus checks, the increase in unemployment benefits and the ability for borrowers to easily suspend payments on many mortgage and student loans, and the expected rise in delinquencies has not happened.

Today, even as Americans start spending again on their credit cards, they continue to pay off their card balances. This means that many borrowers are doing well even during the pandemic. But many card issuers are relying on increasing use of cards and balances for their income, and they wonder if trends in the pandemic will turn into long-term change.

“We are very focused on returning lending growth,” said Discover Managing Director Roger Hochschild. “Bad debts can’t be much lower than they are today, but if your loans keep going down, your income goes down. [and] margins will get worse. “

Some consumers have limited their use of credit cards because things they normally spend money on, like travel and dining out, weren’t an option last year. Others turned to debit cards because they didn’t want to take on new debt in an uncertain economy.

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Carolina Ixta Navarro-Gutiérrez had about $ 2,800 in credit card debt at the start of the pandemic and was making small payments on her.

Wells fargo

WFC 0.33%

& Co. card. But then the government suspended payments on federal student loans and she started diverting the $ 500 she spent each month on those loans to pay off her card.

Ms Navarro-Gutiérrez, a 24-year-old elementary school teacher who lives in Berkeley, Calif., Continues to use her card but now pays it off monthly.

Credit bureau

Equifax Inc.

EFX 1.64%

said U.S. credit card balances totaled $ 749 billion in March for general purpose and store-only cards, down 2% from February and 14.5% from last month. ‘last year. Consumers’ credit card balances averaged 18% of their spending limits on general purpose credit cards in March, down from about 21% a year earlier and the lowest level since Equifax began trading. follow this measure in 2009.

Credit card spending in the United States totaled nearly $ 3.9 trillion in general-purpose and store cards last year, down 9% from 2019, according to the Nilson report, an industry publication.

Spending is rising as the United States emerges from the pandemic, card issuers say. Even so, people still pay off their balances. AT

JPMorgan Chase

JPM 1.14%

& Co, the total amount of credit card purchases in the first quarter increased by 3% compared to the previous year. But card balances fell 14% for the same period.

Matthew Fraser says he paid off all of his credit card debt during the pandemic and no longer uses credit cards.


Photo:

Matthew fraser

Matthew Fraser said he was in debt of around $ 30,000 on his credit card when the pandemic hit, and that he was behind on some of his cards.

Mr. Fraser then lost his part-time job in customer service for a sports team. He had already returned to his parents’ home and used his stimulus checks and unemployment benefits to start paying off his debt. In August, Mr. Fraser got a job selling mortgage loans. In February, he said, he paid off all of his card debts.

“I said, ‘I have to get my finances in order or if I lose my job again… I can avoid having to fall back on my parents,” said Fraser, who is 30 years old. years old and lives in the Atlanta area. . “I am no longer a child.”

He now makes all his purchases with a debit card.

Card issuers try to recruit new customers, especially those with good credit scores who are likely to use the cards often and have balances.

American Express Co.

AXP 0.86%

, which often caters to the wealthiest customers, said it spent $ 1 billion on marketing spend in the first quarter, up 21% from the previous year. The company’s US card balances were down 11% in the first quarter from a year ago.

According to Mintel Comperemedia, issuers mailed about 260 million credit card solicitations in March, up 23% from February and the highest since March 2020, when they stood at around 309 millions. The number of open credit card accounts fell for the first time last year after at least seven consecutive years of increases, according to Mercator Advisory Group, a payments research and advisory firm.

Capital One, which tightened its underwriting standards when the pandemic struck, said it has gradually increased credit card spending limits in recent months. Discover said during his call on the results that he had “started to migrate [its] credit standards are returning to pre-pandemic levels. “

Jillian Berman of MarketWatch explores the financial and psychological baggage debt brings with Leon LaBrecque of Sequoia Financial Group and Lauryn Williams, three-time Olympic medalist and founder of Worth Winning. Together, they discuss strategies for paying off your student loan, credit card, and other debt – and using leverage to your advantage.

Write to AnnaMaria Andriotis at [email protected]

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