Have We Finally Learned Our Lesson About Using Credit Cards?

From our mostly good news department: Fewer Americans are carrying onerous balances on their credit cards, most are paying less interest on those debts and many are working harder not to carry from month to month any credit card balances at all.

A statistical report issued Thursday by the American Bankers Association strongly demonstrated that U.S. credit card holders learned a few valuable lessons from the Great Recession, though they still have some work to do.

"The fact that credit card debt has declined is a welcome development," said Melinda Opperman, senior vice president of Springboard Nonprofit Consumer Credit Management, a nationwide credit counseling and financial education organization. "But there are some things we should consider before we celebrate too much."

Among them, she said, is the diminished availability of card-related credit, a consequence of higher credit score hurdles and other qualification standards now imposed by card issuers.

"This is troublesome, because access to credit is an important driver of mobility," Opperman said. "We try to teach people to use credit responsibly, but we don't want them to avoid using credit altogether.

"Using credit well builds one's credit rating, which helps gain access to housing, loans, employment and more," she said. "If the recession has led to fewer people gaining access to credit, then some people won't have the opportunity to establish a credit history and work their way up through the middle class."

David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, cited the widely shared pain of the recession as a leading factor in our newfound discipline when it comes to credit cards.

"This conservative trend in credit card usage appears to be the result of a shift in consumer thinking primarily based on the drop in home values," Jones said.

"In the past, homes could be counted upon for value appreciation and, therefore, a source for ready loans," he said. "No more, at least for the foreseeable future. Without that backstop, consumers have quit the trend of reckless spending we have seen for decades."

Key findings So it would seem. The ABA's inaugural edition of its Credit Card Market Monitor found:

Outstanding credit card debt has declined. That's true for credit card debt more than that of any other major form of credit during the past five years. Business loans and auto loans have rebounded since the depths of the recession, but mortgage debt is still down 16% and credit card debt remains down by an impressive 22%. As a percentage of the nation's disposable income, outstanding credit card debt has fallen from more than 8% in 2003 and nearly 8% during the depths of the recession to less than 6% in the second quarter of 2013. Further, as a share of the nation's Gross Domestic Product, an important measure, credit card debt stands at 4% -- a 10-year low.

Monthly balances have fallen. The average ending monthly balance for all three risk categories of credit card holders -- subprime customers, prime customers and super-prime customers -- has fallen at least slightly from the highs endured during the recession. At the same time, however, subprime and prime customers still are carrying average balances of $2,500 or more. Those who have the best credit use it least: Super-prime cardholders are carrying average balances of nearly $1,000.

That means that many credit card customers are still hurting. "Our agency still counsels thousands of people looking for relief from high balances and interest rates," said Christopher Viale, president and chief executive officer of Cambridge Credit Counseling in Massachusetts. "During the past two years, however, we've also noticed that the majority of people who only need budgeting help or other assistance outside a debt management plan have lower interest rates and credit card balances. I think this is a natural consequence of the recession."

Interest as a percent of outstanding credit card balances has declined. In 2010, interest accounted for more than 13% of the nation's credit card debt. By the beginning of 2013, that was down to 11.25%.

Experts attributed that to several factors, including tighter application requirements imposed by credit card companies. That reduces the credit card companies' risk, and finance rates can decline. "A change in consumer behavior, coupled with shifts in the risk profile of bank portfolios, mean that the effective cost of credit card credit for consumers is falling," Kenneth J. Clayton, executive director of the ABA's Card Policy Council, said in a statement that accompanied the report.

But the reality of lower interest rates also provides more evidence that some Americans are having more trouble qualifying for the credit that they legitimately need. "It indicates that there are fewer accounts with high interest rates," Opperman said. "While high interest rates aren't a great thing, they're usually associated with accounts held by new consumers and those working to rebuild their credit rating. These are the very people who need access to credit so they can prove they're ready for homeownership, auto loans, etc."

Average interest rates on debt fell. Between the beginning of 2010 and the beginning of 2013, the average interest rate on credit card debt fell from nearly 14% to about 11.8%. On the other hand, credit card interest rates remain relatively high when compared to other forms of credit, and the annual rates on these other forms of debt have fallen by much larger margins. For instance, over that same four-year period, auto loans were down by 32%, mortgages by 31% and business loans by 36%.

A virtuous cycle Together, the findings paint the picture of a virtuous cycle: People are paying off their credit card debts faster than in the past and more people are no longer carrying over credit card debt from month to month to month. Not carrying debt means they're not suffering finance charges or dings to their credit scores -- which lets them continue paying off their debts faster.

The percentage of credit card users who pay off their full balances every month -- a group called "transactors" -- has been inching up almost from the start of the recession. Together, transactors and credit card holders with dormant accounts now account for nearly 60% of all U.S. credit card customers. That is another strong indication that the recession has left a lasting mark on, and produced a valuable lesson for, American credit card holders. On the surface, this seems like wonderful news, but there could be a hidden cost.

"Lower balances could indicate fewer discretionary purchases, which means lower economic activity, and the recovery from the recession is slower," Opperman said. "It's great if people are eschewing credit for day-to-day spending, but if they're not spending at all, our whole economic slump will continue ..."

"Whatever its effect on the larger economy, these trends are good for individual credit card holders," she said. "If consumer spending rebounds fully without increased credit card borrowing, then this will be a great turning point for American consumers."