Credit card delinquencies in Canada fell in Quarter 3 of 2010, indicating that more Canadians are able to manage their debt better, and that they are starting to move out of recession mode. However, the news isn't all good: Even though Canadians saw a reduction in credit card delinquencies, the average household debt grew.
Our neighbor to the south also saw credit card delinquencies drop. Numbers for October of 2010 show that fewer credit card delinquencies were seen in the U.S. Indeed, in the U.S., credit card delinquencies hit an 18-month low in October. This news is encouraging, since it shows that in the U.S. consumers are better able to handle their debt.
Credit Card Use Declines as Well
Not only did Canadian credit card delinquencies fall in Quarter 3, but credit card use declined as well. Indeed, AHN News reports that the number of credit-active Canadians decreased by 0.15%. This news indicates that perhaps Canadians are becoming wary of using credit cards as a means of payment. Credit card debt can be insidious, leading to a number of side effects that you may not anticipate -- some of which have nothing to do with money.
The rising debt consumer debt seen in Canada has served as a wake-up call to some. Consumer spending is an important part of the economy, and Canadians have been slowing down. They have been looking at their debt, and seeing that it is rising. It is little surprise that concerned Canadians are reducing their credit card use and then working to pay down the debt that they have.
In the U.S., a similar trend away from credit card use is being seen. In the States, 8 million people have stopped using credit cards so far this year. Americans are also fed up with credit card debt, showing their disappointment by paying down debt and cutting up their credit cards. In fact, household debt in the U.S. is actually decreasing. This is a contrast to the situation in Canada, which is seeing an increase in household debt -- even as credit card use declines slightly.
Will the Changes Last?
It appears that Canadians and Americans are learning their lesson about irresponsible credit card use for now. With delinquencies down, and credit card use down, there is an appearance of change. But this may not last. The lure of holiday spending may be too great. The AHN News story offers a little caution:
Higgins pointed out credit card debt goes up with the approach of the year end holiday shopping season. He said in a statement, “It will be interesting to see if consumers continue to amass more debt during this holiday season and if delinquencies rise in the first quarter of 2011 when holiday bills are due.
It's an interesting thought. Will the temptation to spend, putting holiday purchases on credit cards, end the current trend away from credit card spending? And once Canadians and Americans look at their bills in January, will the delinquencies spike again? We will have to wait to see.
Image source: Daylife
This post was included in Canadian Finance Carnival #13 at the Canadian Finance Blog.
