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Data for today’s episode is provided by Mercator Advisory Group’s Viewpoint: Revolving Debt in the United States: Ready to Charge, but Exercise Caution
Revolving Debt Generates Interest Revenue:
- A credit card account revolves when the customer does not pay their monthly debt in full.
- Cardholders may pay as little as the minimum due to keep the account current, but interest accrues to the account if a balance remains.
- Mercator Advisory Group projects that 42% of cardholders revolve and 58% pay their bills in full.
- At the current annual average interest rate of 17.13%, monthly interest revenue for U.S. issuers is $14.6 billion.
- Revolving debt fell from $1.092 trillion to $974.6 billion between 2019 and 2020.
- At current interest rates, every billion-dollar reduction in revolving debt diminishes interest revenue by $14.4 million.
Credit card issuers acted aggressively to restore revolving debt, thereby offsetting the interest revenue loss resulting from COVID-related changes in purchasing and borrowing habits. However, while growth results effectively rebuilt portfolios, credit card issuers must be cautious about growing with new, riskier accounts rather than established card accounts.