Credit delinquencies fall, despite more spending

Consumers have shown in recent months they are quite willing dole out money for large ticket items such as new cars and even homes, but at the same time retailers and restaurants report mixed results linked to other discretionary purchases.

A recent credit card study by CardHub.com found consumers incurred more than $17 billion in new credit card debt during the second quarter of this year, wiping away more than 50% of the credit pay downs made in the first quarter.

Analysts said it’s not unusual for consumers to pay down debt in the first quarter as that is when bonuses and many tax refunds are received. However, the spending ramp up that followed this year was 75% higher than consumer tabs in 2010 and 2009 during the early phase of an economic recovery.

CardHub is projecting that consumers will end the year with roughly $41.2 billion in new credit card debt. The average household now owes $6,658 to credit card lenders, up from $6,590 after the first quarter.

While consumers are not afraid to spend on key items they want, it appears they are not over-extending their finances as credit delinquencies continue to decline.

“The fact that charge-off rates are near record lows is significant, as it indicates that consumers are no longer leveraging credit card debt in order to meet basic needs during times of financial hardship. Instead, habitual overleveraging now seems to be a choice,” says Odysseas Papadimitriou, CEO of CardHub.com.

Credit advisors warn that there are plenty of consumers who rely on minimum payments and continue charging, an unsustainable pattern.

For long time economic recovery, credit specialists said consumers will have to prioritize sensibility over luxuries.

U.S. consumers have charged-off on more than a quarter of a trillion dollars since the beginning of 2009. The charge-off rate, at 3.86%, is at the lowest point since 2006.