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July 28, 2011

Credit-debit landscape still in transition

Charge off rates are not a prime factor for declining credit card debt, a new study by TransUnion has revealed.

By Verdict Staff

Charge off rates are not a prime factor for declining credit card debt, a new study by TransUnion has revealed.

The study between Q1 2009 and Q1 2010 has found consumers used their credit cards to make around $72bn more in payments than purchases.

“Many people in the financial services industry believe charge-offs have been the leading factor in declining credit card debt since the start of the recession,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.

“In fact, some have stated that charge-offs account for the entire change in card balances over the past two to three years. In reality, the dynamic is more complex. Our analysis shows that consumers have made a concerted effort to pay down their credit cards during these uncertain economic times.”

In the US, average credit card debt for the period, per-borrower, recorded a drop of more than $600 from  $5,776 to $5,165. In the first quarter of 2011, the figures stood at $4,679. The scenario is a sharp turnaround from five years ago when consumers had made around $2.1bn more in purchases than payments.

“All things being equal, we believe that consumers, especially younger adults, will continue to have an increasing preference to use their debit cards over credit cards,” said Steve Chaouki, group vice president of TransUnion’s financial services business unit.

“However, the credit/debit card landscape is still in transition. Regulatory and legislative proposals either currently under discussion or recently enacted will impact the industry significantly and could alter this payment preference trend.”

The study is supported in its findings by two separate surveys conducted in 2010 by the Federal Reserve and Zogby International. The results supported the trend of increased debit cards usage and reduced purchases-related usage of credit cards.

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