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The substantial drop in credit card debt in the United States since early 2009 has been widely attributed to newly frugal consumers. But analysts say a significant portion of the decline is actually the result of financial institutions writing off billions of dollars in credit card debt as losses.

While consumers have done their part, by shying away from exceeding new credit limits and turning increasingly to debit cards, the question is how much consumers are voluntarily reducing their balances and how much banks are making the decision for them.

The answer has wide implications for the broader economy as banks try to determine who to extend credit to -- and how much -- and as businesses try to adapt to the changes in consumers' spending patterns.

"There is a lot of debate going on right now among economists," said Cristian deRitis, the director of credit analytics with Moody's Analytics, which is studying the issue. "Is there truly de-leveraging or are charge-offs removing a lot of balances?"

Kenneth J. Clayton, senior vice president for American Bankers Association card policy, said the impact of tighter credit was working its way through an economy in which consumers continue to feel the effects of joblessness, lower incomes and declining housing values.

"It has a braking effect on the economy, and the key thing is to get to the right balance," he said. "We are in a process right now of finding that balance."

Consumer debt has been steadily falling over the past couple of years. The Federal Reserve said last week that household liabilities -- including mortgages, credit card accounts, and non-revolving accounts like auto loans -- totaled $13.9 trillion in the second quarter of 2010, down $200 billion from the same quarter a year earlier. Outstanding revolving accounts, mostly credit cards, declined to $832.2 billion from $915 billion in that same period, the Fed said in a separate report earlier in the month.

But economists said they are trying to calculate how much of the drop in credit card debt is due to banks writing off -- charging off, in industry parlance.

DeRitis, of Moody's, said he was examining the credit card accounts of individual borrowers. He said he hoped to answer which borrowers are voluntarily paying down their debt, which are taking on new debt, and to what extent existing borrowers are curtailing balances by paying more than the minimum required.

While the study is not yet complete, deRitis said it appeared so far that most of the overall decline is in the form of charge-offs.

"There clearly is a differential impact with defaulting borrowers having greater difficulty finding credit in the future," he said. "Non-defaulting borrowers are reducing their overall credit exposures, but not at an especially rapid pace, given stagnant incomes and wealth."

"Bottom line -- we are becoming more of a polarized set of consumers," deRitis added.

Another study, released last week by Evolution Finance's CardHub.com, calculated that financial institutions charged off about $20 billion each quarter of 2009 through early 2010, about equal to the amount of the decline in outstanding credit card debt.

"This study's findings give real insight into how seriously the recession crippled consumers with credit card balances," Odysseas Papadimitriou, the chief executive officer, said. "These write-offs also indicate that many banks are still experiencing deep losses and are still in serious trouble."

Consumers doing their part

But Gregory Daco, a senior economist with IHS Global Insight, said the revolving debt figures alone did not explain consumer behavior. In a research note, he said the Fed figures showed that consumers were clearing their balance sheets of various kinds of debt -- mortgages, revolving debt for credit cards and non-revolving debt like car loans.

Still, Daco said, the numbers only "give you an overview of the consumer credit picture."

"You don't know," he said, "the exact proportion of how much people are actually paying off. It is a fact that part of the downward trend in consumer credit is due to charge-offs, but it doesn't give you a clear answer as to what are the main underlying causes of that. And the best way is to refer to anecdotal evidence."

Indeed, analysts said they have found that consumers who once relied on home equity are shuffling their finances, with some not paying their mortgage and using the temporary liquidity boost to pay off credit cards, which they can then use again and again for daily necessities.

Cards or mortgage?

The consequences of that behavior play out in offices like that of Urmi Mukherjee, a financial counselor in Kansas. Late last year, a 39-year-old man supporting a family of four came to her for help, she said. The man, whom she would not name because of privacy issues, worked in management but had his salary cut 25 percent, she said. He was swamped, she said, by as much as $42,000 in credit card debt, and was trying to decide whether to pay that debt down before his mortgage so he could continue to use the card for everyday expenses.

"He had to make a decision between paying the mortgage and paying credit card debt," Mukherjee said. "We see it very often."

Ezra Becker, a director in the financial services business unit of TransUnion, a credit information company, said any bank that ignores shifts in consumer behavior does so at its peril. That behavior, he said, "needs to inform lender policy or lender strategy in how they approach their customers both today and going forward."

In interviews, officials at several of the top American banks that issue credit cards said they believed the worst of the troubled balances have worked their way through the system. Some said in filings this month that their delinquency rates for August were at their lowest levels this year and they expect write-offs to decline, too.

"We see de-leveraging of the consumer," said Jerry Dubrowski, a spokesman for Bank of America, adding that a frugal consumer, decreasing demand for credit and declining balances were also factors. "As they work the balances down, they are not replenishing that with new debt," he added.

Bank of America's chief executive officer, Brian Moynihan, said in April that consumer loan balances were down $37 billion from a year earlier, with $34 billion of that reduction the result of charge-offs. But Moynihan said he expected future credit card losses to be lower.

Even private label cards, or those that can be used only at a single retailer, report an improvement. The largest issuer of such cards, General Electric, said delinquencies and charge-offs were lower in the second quarter of 2010 than in the previous quarter and year.

"U.S. consumers are by and large de-leveraging," said Stephen White, a spokesman. "They are buying less and electing to make purchases more often with debit cards."

Economists agree that one of the consequences of deleveraging has been the shift to debit cards from credit cards, a migration that started before the recession but accelerated during it, said James Van Dyke, the president of Javelin Strategy & Research.

David Robertson, the publisher of The Nilson Report, an industry newsletter, said the dollar amount of purchases put on debit cards is set to exceed those on credit cards sometime in 2014. That is partly because more cardholders will fall by the wayside as issuers raise prices for outstanding balances in response to the Card Act, he said.

"Between the recession-related psychology of not wanting to spend, out of fear of what the future might bring, you have the reality of people who simply don't have a credit card anymore."