Most Credit Card Users Have Revolving Credit Card Debt

CFPB finds stable trend in revolving credit card debt among Americans. A study released this summer by the Consumer Finance Protection Bureau shows Americans tend to use their credit cards as a form of borrowing, though one that comes at a higher cost than other loan options.

The report represents the first time the CFPB has looked at monthly habits of credit card users to gain a greater understanding of how they use this revolving form of credit. One way to consolidate credit card debt may be through a personal loan.

CFPB posted a blog about the study in July, and you can download the full report on the study from the blog. Here’s a quick overview of the CFPB credit card debt study and its findings.

The Credit Card Debt Study

CFPB was able to analyze de-identified data on credit card charges, balances and payments from all of the major credit card companies, representing about 85 percent of all credit cards, from April 2008 to April 2016. This timeframe spanned through the great recession, the subsequent recovery and the passage of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, which aims to give consumers more information about their credit cards so they can be more responsible in their usage.

The study found none of these events made a marked change in the way American consumers use their credit cards and how they pay off their balances.

The analysis breaks down how American consumers treat their credit card usage into four categories:

  • Inactive: These are cards that have no charges, payment or balance over the current billing cycle and the previous billing cycle. Roughly 50 percent of cards were inactive through the first years of the study, but in 2011 some major banks purged inactive accounts and that number dropped to around 40 percent and has remained at that level.
  • Transactors: These are cards that have charges but the balance it paid fully for the current and previous billing cycle.
  • Revolvers: These are cards that carry a balance from the current billing cycle and the previous cycle.
  • Transitioners: These are cards that bounce between two of the other categories in the current billing cycle and the previous one. For example, if the card carried a balance in the previous month but is paid off in the current month.

Because the data was de-identified, researchers were unable to tell if any transitioners were affected by consumers using one credit card to pay off the balance on another, but the data remained remarkably stable, so such activities wouldn’t seem to have great impact.

What the Credit Card Data Found

The biggest finding of the data was that through the course of the study, no matter the economic conditions, about two-thirds of the active accounts each month fell into the revolvers category. Roughly 20 percent of accounts fall into the transactors category and slightly less are in the transitioners category.

These numbers do not mean it was the same accounts that stayed in the various categories for each month. Researchers were able to track “episodes” when cards went into the revolver state and how long it took the accounts to be back to fully paid.

Once an account entered an episode, the average time to end of the episode was 10 months. About 15 percent of the accounts remain in revolving status for two years or more.

One piece of information that is included with the monthly card data is the credit score of the cardholder, so researchers were able to analyze the difference in credit card usage for those with low credit scores versus those with good credit scores.

Not surprisingly, consumers with poor credit scores tend to have more revolving debt than super-prime consumers, those with extremely high credit scores.

Sub-prime cardholders, those with a score below 660, also take longer to pay back their credit card debt than prime cardholders, those at 660 and above. For sub-prime consumers, the average pay-down is 13 months, versus 9 months for prime consumers.

Researchers also found no definitive trend in how users paid down their credit card debts. Some incurred a quick jump in debt and gradually paid it down. Some gradually built up and gradually paid off. And still others gradually built up the debt and paid it off in a lump sump.

Researchers also were able to track geographic trends for revolving credit card usage, but not pinpoint what cultural differences might explain the trends. For instance, high revolving rates were prominent throughout the Southeast United States, but those states largely paid down their debt sooner. Whereas, some Plains states had low revolving rates but long payback periods.

Based on the take of CFPB credit card debt analysis, if you see a need to run up a short-term debt and have the ability to pay it off over a few months, a credit card could be a viable option. But if you have a chronic problem with credit card debt, you may want to look at solutions to improve your overall financial fitness, such as a personal loan for debt consolidation.

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