Consumer Payment Card News

DSR

Homeowners’ debt service burdens have increased nearly two and half percentage points over the past decade, from 10.84% in 1993 to 13.30% in 2003. Federal Reserve Chairman Alan Greenspan said this week the increase is associated with rising levels of credit card debt. Greenspan said there are several reasons that homeowners might carry more credit card debt than they did a decade ago, but these reasons generally do not indicate financial weakness among homeowning households. He noted delinquency rates on credit card payments have been falling during the past year, despite households’ relatively larger holding of credit card debt. Greenspan said one possible reason for the secular increase in credit card debt is rising U.S. homeownership rates. He pointed out that the Federal Reserve’s “Survey of Consumer Finances” suggests that these newer homeowners who make smaller down payments tend to bring with them higher levels of credit card debt. The ability of lending institutions to manage the risks associated with mortgages that have high loan-to-value ratios seems to have improved markedly over the past decade, and thus the movement of renters into homeownership is generally to be applauded, even if it causes our measures of debt service of homeowners to rise somewhat. Greenspan also said another possible reason for rising credit card debt ratios is the use of credit cards for a variety of new purposes. The rise in credit card debt in the latter half of the 1990s is mirrored by a fall in unsecured personal loans. The wider availability of credit cards and their ease of use have encouraged this substitution. The convenience of credit cards also has caused homeowners to shift the payment for a variety of expenditures to credit cards. In sum, credit card debt service ratios have risen to some extent because households prefer credit cards as a method of payment.

            Credit Card Debt Historical
      (excludes store, gas, or other retail cards)
                     $ billions
                     1989 146.6
                     1990 172.6
                     1991 188.8
                     1992  201.8
                     1993  213.8
                     1994  285.5
                     1995  358.1
                     1996  411.6
                     1997  443.7
                     1998  454.3
                     1999  490.1
                     2000  568.5
                     2001 607.7
                     2002 660.9
                     2003: 687.3
            Source: CardWeb.com's CardData

Leave A Reply