Thought Leadership: Northwest States Leads the Nation in Reduction of Credit Card Debt

August 23, 2016

What has changed from 2008 through recently? Lou Grilli of Strategic Link partner CSCU shares his insights.

American credit card debt has risen to a total amount of $953.3 billion, according to the Federal Reserve, a number not seen since 2008, before the Great Recession. During that period through early 2014, Americans reduced their balances while they cut spending. But times are different.

The Wall Street Journal predicts that we are on track to exceed $1 trillion in personal credit card debt as financial institutions “push plastic.” This is reflective of confidence in the job market and a belief that the economy is healthier and improving, leading consumers to feel like they can spend more.

Interestingly, this increase in debt is not evenly distributed by state. Transunion, one of the big three Credit Reporting Agencies (CRA) produces reports on average balance by state, as well as percent change from a year ago, to eliminate seasonality shifts.

States with the largest increases in credit card balances are North Dakota with a 3.6% increase, followed by Oklahoma and Louisiana with an increase of 2.5% and 2.3% respectively. Contrast that with Oregon, with the largest decrease in the nation, 0.3% (tied with New Hampshire), and Washington state with the third largest decrease of 0.2%. Not huge decreases, but still a marked departure from increases seen elsewhere.

There is no one factor to which this can be attributed. Both states have business climates with highly educated workforces, who may have become more diligent in managing debt loads during and after the recession. Conversely, other states have more sub-prime borrowers who up until recently were shut out of loans and access to credit; now as some banks have become aggressive at increasing their portfolios, they are reaching further down in FICO scores, serving the ‘C’ and ‘D’ markets, an area that credit unions typically shy away from.

The takeaway is that consumers are getting savvy to getting the best deals, while also looking for rewards or balance transfer offers. Credit unions are best poised to offer better rates than banks. And given this data, credit unions in Washington and Oregon have an even greater opportunity to grow their credit card portfolios, with both profitable transactors and even more profitable revolvers.

Lou Grilli is Director of Payments Strategy at CSCU