New York Fed finds credit card debt shrinking, student loans growing

Consumers have been making considerable efforts to slash their credit card debt for some time now, and that trend continued into the first quarter of the year, even as many took on sizable student loan balances.

The amount of credit card debt carried by consumers fell once again in the first three months of the year, as Americans' attitudes toward these balances continued to drive them to increase the value and timeliness of their monthly bill payments, according to the latest Quarterly Report on Household Debt and Credit published by the Federal Reserve Bank of New York. But at the same time, consumers also took on far more student loan debt than they had at the end of last year.

Consumer credit card balances slumped to a total of $679 billion in the first quarter of the year, down from the $704 billion observed at the end of last year, the report said. Further, it was lower than the $696 billion observed in the first quarter last year, and  also 21.6 percent down from the all-time high of $866 billion observed in the fourth quarter of 2008. And at the same time, the number of inquiries for new lines of credit, which is seen as an indicator of overall demand for new accounts, declined 0.5 percent, but is still 15.5 percent higher than the record low observed in the first quarter of 2010.

Student loan demand continues to grow

And even as consumers are more cautious about dealing with credit card debt these days, many are still relying heavily on outside financing to help pay for their college educations, the report said. The amount of student loan debt being carried nationwide rose to $904 billion in the first quarter of the year, up $30 billion from the end of 2011, and $65 billion on a year-over-year basis.

In all, student loan debt has grown to its current levels from just $663 billion in 2003, and surpassed credit card debt as the second-largest form of consumer debt in the second quarter of last year, trailing only outstanding mortgage balances, the report said. Currently, consumers owe nearly $8.19 trillion on their home loans.

"Student loan debt continues to grow even as consumers reduce mortgage debt and credit card balances," said Donghoon Lee, senior economist at the New York Fed. "It remains the only form of consumer debt to substantially increase since the peak of household debt in late 2008."

Consumers who are taking on any kind of credit should first take the time to check their credit reports to make sure everything is as it should be. In some cases, there may be unfair markings on these documents, which can drag down borrowers' credit ratings. Fortunately, working with a credit repair company can help to mitigate these concerns by getting the questionable entries cleared up quickly.