Credit Card Borrowing Declined 13.1% the Annual Pace in February

As more individuals make an effort to pay back their debt, consumer borrowing has been declining. Revolving credit – mostly credit-card borrowing, has declined at 13.1% the annual pace in February, while non-revolving credit, like car loans and school loans, dropped at 1.6% the annual rate in the same month.

The American Bankers Association released survey results that showed defaults on consumer loans dropped greatly during the fourth quarter. It’s too soon to say the worst is over though, as the credit card defaults are still at historical highs. J.P Morgan Chase (as well as other credit card lenders and loan lenders) predict they will continue operating at a loss for the rest of 2010.

Credit card issuers are continuing to reduce credit lines when issuing credit, canceling cards for their riskiest customers and closing unprofitable credit cards. Banks are writing off more credit card debt as noncollectable. Bank of America Corp reduced the affinity card programs typically targeted to college alumni associations, charities and social groups by 12%.

As consumers reduce their spending to focus on paying back debt, the recovery of the economy will also be slowed. While individual households may benefit from less debt, less consumer spending hurts the economy as it accounts for about 70% of the economy’s financial picture.