Helping People Reclaim Financial Health

American shoppers did not shed their reliance on credit cards over the year-end holidays.

An article by the New York Times

While the average debt on credit cards in December decreased by 4 percent compared with the same month a year before, Americans still carried an average of $4,284 on credit card statements in December 2010, according to data released this week by the credit monitoring company Experian.

The data offers conflicting versions of the economy's already mixed picture. While some consumers spent more during the holidays because the economy was rebounding, others were still unable to cover expenses without leaning on their credit cards. And while holiday spending also appeared to have been more robust than in the last several years, even more recent data has shown a bit of a slowdown in consumption this year.

"You've got people who already had good credit and were pretty much managing their credit, and because of the risk, paid down their debt even more," said Maxine Sweet, vice president for public education at Experian. Then there were "very dramatic increases in debt by people who, mainly, lost jobs, but also had medical emergencies, and turned to credit cards to carry them through the hard times."

The most recent consumer credit report from the Federal Reserve showed that revolving credit, which is mostly credit card debt, increased by 3.5 percent in December at an annual rate, the first such increase in 27 months. (That data included "charge-offs," or debt that the credit card companies considered essentially uncollectible, while the Experian data, since it was pulled from active credit files, did not.) Card spending (including credit, debit and electronic benefit-transfer cars) was up 6.5 percent in December compared with spending at the same stores a year earlier, according to First Data, which processes merchant transactions.

Retailers tend to benefit from credit card spending, as it often means people are spending beyond their budgets.

Holiday spending rose 5.5 percent in the 50 days before Christmas in 2010 compared with 2009, according to MasterCard Advisors SpendingPulse. Much of that was driven by increases in apparel, jewelry and luxury goods.

While many shoppers had vowed to spend only with cash this holiday season, that was a budgeting trick that not everyone could use.

The cash shoppers, Ms. Sweet suggested, "were the ones that were pretty much in control - they can say, 'I'm going to be more conservative.' " People under more difficult circumstances had to put certain debts on their credit cards, she said. In February, the retail analyst David Strasser issued a note to clients saying that the increase in credit spending was good news.

Spending at Visa and MasterCard in the United States was up a combined 8.3 percent for the fourth quarter, Mr. Strasser noted, "a hopeful sign that big-ticket spending is in recovery mode for 2011."

"Weak credit trends have clearly bottomed out," he wrote, and the increases in credit card spending "will disproportionately help big-ticket retailers that were hit hard during the downturn, as credit was curtailed and consumers lacked liquidity to purchase big-ticket products."

The Experian data, which is broken down by metropolitan area, also gives a sense of how different cities may be recovering from the recession.

The city with the highest card debt in December was San Antonio, with $5,177 due on average, 21 percent above the national average. (The figures include debts on regular credit cards and retail Visas and MasterCards, but not a retailer's own card - so a Gap-brand credit card would not be included, but a Gap Visa card would.)

San Antonio was followed by Jacksonville, Fla., at $5,115, a city with one of the lowest average credit scores, suggesting that pure debt may have been piling up there. Dallas, which came in at fifth with $4,936, also has one of the lowest average credit scores in the country.

Atlanta was third, with $4,960, and Honolulu, with $4,939, was fourth.

In 2009, the list of cities with the most credit card debt was similar: Dallas, Atlanta, San Antonio, Jacksonville and the Waco, Tex., metropolitan area.

Jeanie Wyatt, chief executive of the San-Antonio based advisory firm South Texas Money Management, said the economy in the city had been quite steady.

"Our unemployment rate is lower than the national average," she said, "the health care field has been fast-growing, and of course we still have a big military component, and tourism, and a growing energy component. People are feeling, I think, pretty good about their job security."

She said San Antonians were largely living on working-class paychecks, which could explain some of the credit card debt.

"While San Antonio has a lower unemployment rate and a more stable economy, our wage earners are at that mid- to lower end," she said. "I would presume that lower-income individuals tend to have a higher percentage of credit card debt."

The cities that racked up the lowest credit card debt for December were Sioux Falls, S.D. ($3,446); the area in Tennessee and Virginia around Kingsport, Johnson City and Bristol ($3,449); Fort Wayne, Ind. ($3,476); Paducah, Ky.($3,515); and Davenport, Iowa ($3,515).

In December 2009, the cities with the lowest credit card debt were Altoona, Pa.; Lafayette, La.; Evansville, Ind.; Davenport, Iowa; and Cedar Rapids, Iowa.

VantageScore, a credit rating produced by the three major reporting bureaus, Experian, Equifax and TransUnion, gives a picture of whether the credit card spending came from economic confidence, or from desperation.

Midwest and West Coast cities dominated the list of cities with the 25 highest VantageScores. Wisconsin had three cities on that list (Green Bay, at No. 1; Madison, at No. 2; and Milwaukee, at No. 21). Several states had two: California (San Francisco and Santa Barbara), Minnesota (Minneapolis and the Valley City-Fargo area, which crosses into North Dakota), Oregon (Eugene and Portland) and Iowa (Cedar Rapids and Des Moines). There were no Southern or Southwestern states on the list of the top credit scores.

"Cities like Minneapolis, that always have great credit scores, actually have higher debt than other cities," Ms. Sweet said. "But it's offset by the fact that they never miss payments, and they always have high credit limits."

The list of the 25 cities with the lowest VantageScores in December was heavily Southern. Texas had seven cities on the list (Harlingen, El Paso, Tyler, Waco, San Antonio, Dallas and Houston, going from lowest to highest credit scores). Other than two California cities (Bakersfield and Fresno) and Las Vegas, every other city on the list was from the South.

"Part of that is a lot just a lot of younger people moving in, and a larger migrant population - so by younger, meaning not just in age, but also less depth in their credit history, and we think that's one factor," Ms. Sweet said of the lower credit scores in Texas in particular.

"When you have these consumers who are in crisis with foreclosures and unemployment, that has to be driving up their credit card debt," Ms. Sweet said.

Shoppers interviewed last December sounded quite cautious about their spending.

Julianne Cantarella, 43, was at the Garden State Plaza Mall in Paramus, N.J. (the New York metropolitan area is No. 42 on the Experian list of high credit card debt). Her house had finally sold over the summer after being on the market for a year and a half, she said, so she thought the economy was improving.

"But I did cut down on the money I'm spending and the amount of gifts I'm buying," she said.

In Columbus, Ohio (No. 12 on the Experian list), Dorothy Huggins, 54, was shopping with her granddaughter.

"Everybody in our family is fine - nobody's lost their jobs, but I have lots of friends and neighbors who have been hit," Ms. Huggins said. "That made us more conservative this year because we're wondering, are we next?"

"There are so many people hurting, through no fault of their own. And we're fortunate enough to be doing well," she said. "So we bought a lot less stuff this year."

Christopher Maag contributed reporting from Columbus, Ohio, and Nate Schweber from Paramus, N.J.