Consumer credit card debt slumped by $4.5 billion in June, marking a record 21st straight monthly drop, according to the latest Federal Reserve data.

AMERICANS' CREDIT CARD DEBT

CONTINUES TO SHRINK ...

Consumers' credit card debt has decreased for a record 21 months. The chart above shows how much less credit card debt Americans have than they did when revolving debt hit its peak of $975.7 billion in September 2008.



Note: Decrease is cumulative, and shown in billions of dollars.

According to the Federal Reserve's latest G.19 report released Friday, U.S. credit cardholders' balances tumbled 6.5 percent in June, continuing a record pullback in revolving debt levels that began in October 2008. Overall consumer debt fell slightly, losing 0.7 percent to $2.419 trillion.

In its monthly G.19 report on consumer credit, the Fed considers changes in credit card balances as well as other types of debt: The consumer credit report looks at both revolving credit, a loan type nearly completely comprised of credit card debt, and nonrevolving debt, a category that includes auto loans, student loans and loans for mobile homes, boats and trailers. As revolving debt fell, nonrevolving debt increased by 2.4 percent.

Amid concerns that the U.S. economic recovery may be stalling, credit card debt levels are heading still lower. The revolving debt component of consumer credit fell to $826.5 billion from $831 billion in May. At its peak in September 2008, U.S. credit card debt stood at $975.7 billion. It has plunged a total of $149.2 billion since then. That means the average U.S. household with credit card debt -- of which there are roughly 54 million, according to government data -- has eliminated roughly $2,763 in credit card debt during that period, as borrowers either paid down debt or had it charged off as uncollectable.

Economists say a combination of factors are sending revolving debt numbers lower. "We are seeing continued pullback in consumer spending. And we're seeing higher saving rates that are being used to pay down debt. Specifically, with the new credit card laws, we're seeing more interest in paying down balances," says Scott Anderson, director and senior economist with Wells Fargo in Minneapolis. "We're also seeing credit limits cut for some consumers."

Data highlight saving

Credit cardholders are certainly playing a role, with recent data highlighting consumers' attempts to build up their savings. The Commerce Department reported Tuesday that the personal savings rate reached 6.4 percent of after-tax income in June -- the highest level in a year -- while personal spending was unchanged. That means consumers have additional dollars they can put toward debt.

"Americans are rediscovering the importance of living within their means. They're saving more and paying down debt. And they're growing more careful about how they borrow and how they invest," U.S. Treasury Secretary Timothy Geithner said in a speech on Monday. "These changes are necessary and healthy. And they will make us stronger as a country."

Of course, consumers may also be more fearful, with many socking away a larger share of their paychecks amid legitimate doubts about their job security. Unemployment remained at 9.5 percent in July as the economy lost a net 131,000 jobs last month.

Falling prices spur debt repayment

Weak home prices and deflationary pressures have played a role, too, experts say, in the decline in consumer credit.

"A key factor has been the collapse of housing prices," says Raymond Jones, managing director with DechertHampe Consulting. "Consumers had been using the equity in their houses to support (or at least justify) excess spending, most often using credit cards. Now housing is having the opposite effect. People can no longer afford to spend beyond their means, and they continue to reduce their debt," Jones says in an e-mail.

... BUT THE DEBT IS DROPPING

AT A SLOWER RATE

In June, consumers' credit card debt fell again, but by the smallest perrcentage in months. It fell by 6.5 percent, after seeing double-digit declines in April and May. The above chart shows monthly percentage decline for the last three months, as well as the quarterly decline dating back to mid-2009.



Prices are moving lower on everything from homes to groceries, which has led some experts -- including St. Louis Federal Reserve Bank President James Bullard -- to worry that the economy could enter a period of deflation.

What does that mean for borrowers? "If prices are falling, your debt becomes a bigger burden in real terms, so it increases your incentive to pay down your balances," Anderson says. That's because the dollars needed to repay that debt have become more valuable. It comes down to a basic equation, Anderson explains. "Inflation -- good for debtors, deflation -- bad for debtors," he says.

Credit card law plays a role

Banks, meanwhile, may also be discouraging the use of plastic. In the wake of the Credit CARD Act of 2009, many card issuers have adjusted terms on their products -- including raising interest rates, introducing new fees and hiding penalty rates -- in an apparent effort to protect their profits. Under the CARD Act, however, cardholders have the right to close their accounts rather than accept new terms. "There have been a lot of adjustments to credit card agreements that have given people the opportunity to opt out or switch to another card," says Anderson.

Those term changes haven't gone unnoticed by cardholders. "There's a sense that, 'Credit got me into trouble. I'm not sure what the new rules are. I'm going to opt for using cash or debit cards,'" he says.

That consumer outlook is likely to continue. Against a backdrop of falling prices and cardholder efforts to deleverage -- or shed their debt burdens -- credit card balances aren't likely to increase anytime soon. "The consumer is clearly in a process of deleveraging, and we expect that to continue for some time," Jones says.

See related: A guide to the Credit CARD Act of 2009, Credit card lending standards keep tightening, Fed report says, Poll: 2 out of 5 credit cardholders report getting whacked, Calculate the cost of just paying the minimum, Calculator: How long until my card balance is paid off?, Credit card rates: interactive graphic on APR changes