Many a bad joke begins with the words,” I have good news and bad news.” The punchlines that follow vary widely in quality, but we all understand the good news / bad news format.
Credit card debt is no joke, however, and the good news and the bad news are intertwined.
The good news is that Americans owe less on their credit cards than they did before the Great Recession. According to a study by the Federal Reserve, fewer families are using credit cards to borrow money than was the case a few years ago. And the median balance on credit card accounts fell 16 percent between 2007 and 2010.
But now for the bad news. Median family income has fallen 7.7 percent since 2007. Median family net worth has fallen even more – by nearly 39 percent.
The real estate crisis has a lot to do that, of course, as home values have fallen and then fallen some more. Retirement accounts and other investments have also taken big hits since 2007.
Many people have had to tighten their belts following the recession. That basic fact does point toward less credit card use.
Economists who have studied the data say that the main reason for the decrease in credit card debt, though, is that many people have filed for bankruptcy. Bankruptcy can help get rid of old debts and give people a fresh start.
The increase in bankruptcy filings nationally reflects this phenomenon. In 2007, the number of filings was 822,590. By 2010, the number had jumped to 1,536,799.
Source: “Credit Card Debt Cut: The Reason May Surprise You,” NPR, Marilyn Geewax, 6-12-12