Revolving Debt Declines Among Millionaires

For the first time in 15 years, interest rates on new credit card offers remained flat at the start of a new year, according to the latest weekly report released today by CreditCards.com, but it remains to be seen whether more sobered American consumers will increase their revolving debt levels in 2012.

The average annual percentage rate – or APR – held at steady at last week’s rate of 15.14 percent. Rates may be flat but they are significantly higher than the 14.71 percent APR offered in the first week of 2011 and the 12.87 percent APR offered in the beginning of 2010, according to Kate Tomasino, CreditCard.com contributor in a report released today.

Credit card borrowing appears to be on a slow upswing as American consumers grow more confident about the economy, according to the most recent data available from the Federal Reserve. Total consumer debt increased 3.7 percent in October to $2.46 trillion, following a 3.4 percent increase in September. Credit card debt increased at an annual rate of .5 percent through October, after falling in 2009, 2010 and the two of the first three quarters of 2011. Total credit card debt stands at $792 billion, down from a five-year high of $958 billion in 2008.

Even the wealthiest Americans have taken steps to pay down credit card balances in response to the prolonged economic downturn. A fourth quarter study of investors with a net worth of $1 million to $5 million indicates that Millionaires have joined less affluent Americans in “deleveraging” or paying down revolving debt and other loans. By year-end, about 21 percent of Millionaires reported carrying credit card balances averaging $12,000 – that’s less than half the average balance of nearly $30,000 reported in 2010 and less than one-third the average balance of $41,950 reported in 2009.

“Millionaires have repeatedly told us that the recession has taught them they importance of saving more, spending less and reducing debt,” said Catherine McBreen, president of Millionaire Corner. “Our latest study shows Millionaires – like most Americans – have taken these lessons to heart and are moderating their use of credit cards and other forms of consumer debt.”

Millionaires have slashed balances on several types of loans. Though the share of Millionaires holding first mortgages has remained around 42 percent for the past three years, the average mortgage balance has dropped from $308,390 in 2009 to $218,000 at the end of 2011. About 19 percent of Millionaires reported holding second mortgages at the end of the year with an average balance of $92,000 -  a $33,000 reduction from the average second mortgage balance of $125,000 reported in 2009.

The percentage of Millionaires holding car loans was 19 percent at the end of the year, and their average balance was $19,000. In contrast, Millionaires reported an average car loan balance of $37,340 at the end of 2009.

“It remains to be seen whether new credit card offerings will tempt Millionaires to take on more revolving debt in 2012,” said McBreen.