BillShrink Study Shows More People Decreasing Credit Card Debt Following Last Year’s Financial Reforms

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New study shows that card rates stabilized and personal debt decreased in 2010

Today, BillShrink (http://www.billshrink.com), the popular money-saving search engine, announces results of their personal debt survey that shows the consumer protection reforms of 2010 helped people reduce consumer debt last year. After the passing of the CARD Act, credit card interest rate hikes subsided and the trend toward reducing overall credit debt continued in America.

The Federal Reserve reports that revolving credit is currently at $800.5 billion – its second lowest level in two years.

The CARD Act prevented issuers from raising certain rates, in addition to other notable provisions including 45 days’ notice on fee and rate changes and a cap on penalty fees so that they don’t exceed the cost of the offense that activated the fee (e.g. cardholders can’t be charged more than $25 on a missed $25 minimum payment). Since banks were expected to lose revenue generated from these fees, insiders speculated that credit card issuers would raise fees for other services. However, in keeping with the intent of recent legislation, American Banker notes that some issuers like Bank of America and Wells Fargo have actually eliminated fees like penalty APRs for cardholders who miss payments.

Over the last year, BillShrink studied 116,000 users looking for advice on credit cards and tracked more than 220 credit cards to examine consumer debt and credit card interest rates since the CARD Act went into effect. Here are the key findings:

Credit card interest rate increases wane after CARD Act

  •     The year before CARD Act, interest rates increased an average of 16% and some card rates soared upwards of 30% (see BillShrink February 2010 card rate study)
  •     Since the CARD Act was enacted on February 22, 2010, rates increased a mere 2%

Personal debt is on the decline

  •     Average personal debt continued to decrease over the last year
  •     While holiday shopping added some additional debt onto consumers’ cards, on average, most Americans continue to decrease their total annual credit card balance. BillShrink finds that the average user currently carries a card balance just under $7000, a decrease of 4% from last year’s total debt figure.
  •     A larger number of cardholders today are able to pay off their monthly credit card balance in full as compared to last year
  •     65% people paid off their card balance in full in January 2011 versus 58% people who were able to pay off their credit card balances in full last January

“There’s a palpable change in consumer spending behavior following legislation passed last year that forced credit card issuers to curb egregious rate hikes and to introduce more transparent billing procedures,” said Schwark Satyavolu, CEO and co-founder of BillShrink. “When the CARD Act went into effect, many people feared it wouldn’t help alleviate debt because they would be hit with new credit card fees. We are thrilled to see that in actuality, people have been freed up to pay off more debt and that interest rate increases have been negligible.”

About BillShrink
Since BillShrink’s launch in 2008, the company has helped 1.5 million Americans save more than $1 billion by delivering personalized money-saving recommendations on their most common household bills.
In an era when eight out of ten people overpay on their everyday bills, BillShrink sorts through millions of products and services – a billion cable and satellite packages, 10 million cell phone plan combinations and 150,000 gas stations – to provide unbiased recommendations so users can get exactly what they need at the best price.

With the recent launch of StatementRewards℠, BillShrink brings the power and breadth of its money-saving platform directly to users within their online bank statements. BillShrink is working with the country’s leading merchants and financial institutions so that users can now receive and customize money-saving offers from their favorite merchants and service providers directly within their credit card statement.

BillShrink was listed among the “Top 20 Best Money Websites” by Money Magazine and named one of the “Best Web Sites” by Kiplinger’s. The company has been featured in the country’s leading news sources including The Wall Street Journal, The New York Times, American Banker, Consumer Reports, Fortune, The Dr. Oz Show, The Today Show, CNN, ABC and CBS. The company publishes the popular “Shrinkage is Good” blog, which features commentary on the latest economic news and savings tips. BillShrink is headquartered in Redwood City, California. For more information, please visit http://www.billshrink.com.

*Editor’s notes: Between March 2010 and January 2011, BillShrink studied 226 credit cards’ advertised, non-introductory rates (rather than promotional rates) as they most accurately represent the rate an individual would pay long term. All rates are averages across multiple cards. BillShrink evaluated cards from American Express, Bank of America, Capital One, Chase, Citi, Discover, First National Bank of Omaha, HSBC, US Bank and Wells Fargo. Note: a 3% rate increase shows how an interest rate has changed relative to what it was, not what it is in absolute terms. For example, if a purchase rate used to be 10% and now it is 10.3%, it would have a 3% lift.

BillShrink surveyed 116,138 users from January 2010 to January 2011. By answering 'Yes' or 'No' to the question "Do you pay off your credit card balance each month?," users were directed to credit cards that offered the lowest interest rate or the highest reward (cash back, airline, etc.) advantages.

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Matt Mirandi

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