Americans Continue Cutting Credit Card Balances in August, Fed Reports
The Federal Reserve (Fed) reported last week that Americans cut credit card balances again in August for the sixth month in a row. Despite the predicted increase in credit card spending, revolving debt declined by $9.4 billion in August, leaving it at the lowest figure economists have seen since 2017.
According to a PYMNTS article highlighting the Fed data, credit unions picked up a larger share of outstanding revolving debt in August while finance companies held steady. Banks experienced a slight decline in their share of revolving debt, likely due to many Americans using non-traditional lending sources amidst the COVID-19 pandemic.
Banks, credit unions, and finance companies all increased their holdings of non-revolving debt in August. Non-revolving debt is largely made up of automobile loans, as the Fed’s data does not include residential mortgages.
Alternatively, non-profit institutions like universities and colleges dropped some non-revolving debt to the lowest level they have seen in two years.
Major types of consumer borrowing from commercial banks declined in August 2020 compared to August 2019. Four-year auto loans carried a 4.98 percent rate in August compared to 5.39 percent in 2019. Additionally, the average credit card interest rate with a commercial bank was 14.58 in August 2020, down from 15.05 percent in August 2019.
These figures do not reflect changes in borrower behaviors ⎯ including potential borrowers ⎯ that could have taken place after the CARES Act’s $600 weekly unemployment benefit program ended on August 31.