Consumers are doing a better job of paying their credit card bills on time. According to a recent report by the American Bankers Association, bank-issued credit card delinquencies dropped to their lowest rate of 3.28% in the last quarter of 2010, compared with the 3.64% it had been in the previous three months. A delinquency is defined by the ABA as a payment overdue by 30 days or more. This is the lowest bank-issued credit card delinquency since the first quarter of 2001, nearly ten years, and it is also below the 15-year average of 3.92%.
The rate of unemployment has been falling steadily and dropped to 8.8% in March. Private-sector employers added 216,000 jobs that month. Clearly, our economy is slowly but surely recovering, and consumers are better able to make their credit card payments in a timely manner.
In addition to bank-issued credit card delinquencies, the overall delinquency rate decreased in the final quarter of 2010 from 3.01% to 2.68%. In fact, 9 out of 11 loan categories that the ABA tracks decreased in the fourth quarter. In the category of home improvement loans, ABA reported a slight rise in loan delinquencies to 1.26% from 1.23%. The only other category that did not show a delinquency decrease was housing loans, but these remained unchanged at 4.05%.
ABA chief economist James Chessen believes these figures to be encouraging. “I’m feeling hopeful about further declines in delinquencies because of continuing job growth, but the unknowns are the impact of higher gas and food prices,” he said in a statement.“The 2% reduction in federal payroll taxes that began in January was intended to boost discretionary income. Unfortunately, rising prices have dashed any chance of that.”
The Associated Press reported in March that food prices in February saw the biggest rise in 36 years. Cold weather was mostly to blame, The AP said, but prices on food commodities have risen sharply over the last year.
The national average gasoline price on April 11 was $3.77, compared with $2.86 a year ago, according to AAA. Instability in oil-producing countries like Libya pushes gas prices up, along with rising demand as Americans travel to work more and once again have money to travel on vacation.
Clothing retailers, too, are raising prices. The price of cotton has more than doubled in the last year, according to The AP, and synthetic fabrics cost nearly 50% more. As shoppers return to stores, steep discounts are no longer needed.
With recent world events and rising gas and food prices, consumers will certainly continue to face challenges. But the fact that unemployment rates are improving seems hopeful. The more money consumers make, the more they will be able to make necessary payments on time. Hopefully, we will continue to see delinquency rates drop throughout 2011.