Consumer Revolving Debt is Slowing Down but Still Growing after a Rough January

Debt Relief, debt settlement, credit counseling companies take notice:

Take a look at the current release from the Fed on May 3rd regarding total consumer revolving debt. It looks like January’s dip has stabilized through Feb and March – not sure how April and May will play out but it seems to be chugging along.  Other areas of debt in the non-revolving category seem to be unabatedly growing.  I think the January dip was super healthy in that it shows consumers had cash to pay off their credit cards but their spending went back up and now we are at just under the highest levels of revolving credit card debt at 999.8 Billion (highest was 2016 at just over a trillion).

The most interesting note in my opinion is that the monthly growth numbers after January for 2017 look more like 2012 and 2013 in terms of growth of revolving debt which means consumer are not adding as robustly as 2014,15 and 16.  The year is still early but noting Januarys strong dip, the question then becomes are consumers too overburdened with non-revolving debt and thus slowing in their revolving consumption or are they simply being prudent and smart about their revolving spending – I believe from a cyclical debt perspective it’s the former given that consumers are facing much higher costs of non-revolving as it has been growing robustly into this year.  In other words, they can’t in their minds see more credit card spending because they are so pressed with other non-revolving commitments so they are slowing the accumulation of revolving debt for better or worse… not as slowly as 2012 and 2013 but not as quickly as 14,15,16. 

https://www.federalreserve.gov/releases/g19/current/default.htm

Credit card issuers could also be staying ahead of defaults by initiating credit caps and adjusting their scoring algorithm to heavily penalize over usage of revolving accounts to prevent extended revolving problematic accounts.  They have deep behavior analysis and update their algorithms to adjust.  For example, they heavily penalize use that is over 30% on any card vs. total revolving debt so even if you have $100K of revolving debt – if you have a $10K card that you max out, your score is impacted which affects your ability to get additional credit. 

These small tweaks may seem innocent but it points to a larger trend of manipulating credit usage from an algorithm perspective and staying ahead of defaults by controlling the ability of potential defaulters to acquire larger and larger amounts of credit card debt without impacting their score and thus preventing that from occurring.

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