Report shows CD balances used to pay for credit card debt

A report by Market Rate Insight indicates that $29 billion in certificates of deposit balances have been used to pay off credit card debt for the first to third quarter of this year. Compared to the same period as last year, CD balances have dropped from $2.36 trillion to about $2.16 this year.

Market Rates Insight found that credit card debt payment accounted for 15% or almost $30 billion of the $200 billion decrease in CD balances. Dan Geller of MRI said that this is indeed a positive sign of correlation between CD balances and credit card debts.

Geller said that with the decrease in CD balances came the reduction of credit card debt, indicating that consumers’ money on their CDs are used to pay for their debt priorities. He states that such news tells more of how the consumers may be realizing the importance of settling their debts whenever they can. He said that though it may be too early to assume that the consumers are starting to be more responsible about their finances, at least CD balances do generally go to where they’re supposed to—and that is the long-standing and overdue consumer debts.

What Geller says about the correlation between CD balances and credit card debts is that when one decreases, the other is also expected to get lower. He adds that the correlation is also linear and that this is an improvement we’ve all been waiting for after the economic recession. By a linear relationship Geller stated that the decrease in credit card debts can be attributed to used money from the CD balance.

Market Rates Insight also reported that the lowered credit card debts started decreasing last year. MRI however, is still cautions to believe that revolving debts are also decreasing due to increased credit card payments. One thing is for sure for Geller and other financial analysts: lowered credit card debts since last year is good news.

Aside from consumers who have been generally able to pay their debts since the last year by withdrawing their CD balances and not reinvesting them, financial analysts name writing off bad credit as a huge factor to debt reduction.

Market Rates Insight is a firm that monitors of interest rates and fees, loans and deposits. MRI publishes monthly updates concerning CD rates and the latest news about legislation and other issues concerning financial institutions and investment tools.