According to analyst reports, Americans' sudden urge to pay down their credit card balances could be putting credit unions under significant pressure. With certificates of deposit and other long-term savings vehicles producing annual percentage yields in the low single digits, many consumers have chosen instead to pay down credit cards with double-digit interest rates. Industry research indicates that consumers cashed out $200 billion in CDs during the first half of 2010, while eliminating over $27 billion in credit card debt.

However, as reported by community banking trade publications, the trend could harm locally-managed credit unions. When consumers pay down a credit card balance, the issuing bank becomes recapitalized and can profit by loaning out that money to other customers. But, by closing out or failing to roll over a CD, credit union members pull money from a cycle of lending that favors local homeowners and businesses.

In response, some credit unions have launched or expanded their own credit card offerings, including inexpensive balance transfer options. Analysts note that credit unions can regain balance over their portfolios by gaining more comprehensive knowledge about their members' overall financial strategies.

About the Author


Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.