CHICAGO - While the federal government’s economic stimulus plan is aimed at boosting consumer spending, more individuals will pay down debt instead of splurging when they get their rebate checks, according to one new analysis.
TransUnion said it found in a survey of more than 3,000 adults in late January that more than four in 10 (42%) respondents said they would pay down debt if they received a tax rebate, while 20% would save the money, and 16% would buy something they considered necessary. Only 5% said they would splurge.
Ezra Becker, principal consultant for Trans-Union Financials Services, told the Credit Union Journal that TransUnion credit data trends support the poll’s findings. “It’s interesting, because the average total debt burden for U.S. consumers has not only been increasing, it has been increasing at a faster pace,” noted Becker. “The average debt burden today is much larger than it was back in 2001 (when the last economic stimulus package was offered), and that’s above and beyond the effects of inflation. So we expect to see a corresponding higher emphasis on paying off that debt than we saw back in 2001 and 2002.”
Using information drawn from consumer credit files, TransUnion said that the data from 2001-2003 showed that consumers paid down debt during the last stimulus program. Third quarter 2001 saw a high percentage of consumers 60 days plus past due on bank cards (just under 3%). The percentage of consumers 60 days plus past due on bank cards dropped to 2.4% in the second quarter of 2002 and then rose, hitting above 3% in first quarter 2003. The average balance of bank cards 60 days or more past due saw a significant drop in third quarter 2001. After the drop in third quarter 2001, the average balance of bankcards 60 days or more past due continued to rise (fourth quarter 2003 over $2,200).
“Past trends showed that American consumers had some sense of responsibility to pay what they owed rather than buy new things they didn’t have money for,” Becker noted. “Unfortunately, we also found that the drop in the delinquency rate didn’t last long.”
With rising delinquencies and a potential for members to have extra money to help them repay, is it time for credit unions to focus on collections?
“It’s never a bad time,” Becker said. “But don’t try to call everyone who is past-due. Perhaps it’s better to rank order those people in terms of recoverability to maximize the return on the dollars you invest in collecting. For some people it will suffice to get a return if you send them a letter rather than having a collection rep call them. If you have some methodology to segment out your collections portfolio into a high or low likelihood of recovery, you can more effectively allocate resources to get the most recovery dollars possible.”
