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updated 3/10/2010 7:10:19 PM ET 2010-03-11T00:10:19

With unemployment high and personal wealth diminished, how was it that strapped consumers were paying down their credit card debt last year? It turns out they probably weren't.

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The bulk of 2009's drop in credit card debt instead came because banks were forced to write off loans consumers failed to pay, according to an analysis of Federal Reserve data.

Loans are typically charged off by banks once they're 180 days past due, under the assumption that the debt won't be repaid.

In 2009, banks wrote off a record $83.27 billion in credit card debt. A study by consumer credit research site CardHub.com found that accounts for the bulk of the of $93.2 billion drop in consumer card balances reported by the Fed for last year.

"If you just look at the numbers, you think, 'Oh my goodness, there was a big decrease in credit card debt,'" said Odysseas Papadimitriou, CEO and founder of CardHub.com.

But Papadimitriou said it didn't add up that consumers could make such a big dent in debt while under the financial pressure Americans faced last year.

The Federal Reserve's reports on outstanding consumer loans don't tease out the amount charged off by banks. By that measure, credit card borrowing fell for 16 straight months through January, suggesting consumers have been chipping away at balances and spending less.

When you consider how much banks are being forced to forsake in bad loans, however, consumers' ability to pay off balances doesn't appear as rosy.

The only time consumers truly paid down their debt was in the first quarter of last year, the CardHub.com study finds. During those three months, card balances fell by $46.9 billion, excluding the $17.59 billion banks wrote off.

After that, card balances either remained steady or rose.

The charge-off rate on credit card loans spiked dramatically in the downturn, hitting a record 10.1 percent in the third quarter of 2009.

The rate eased to 9.4 percent for the year's final three months. By comparison, the rate was 4 percent in the fourth quarter of 2006, a year before the downturn began.

The situation may only get worse for banks. Moody's Investor Service expects the charge-off rate to top out at 12 percent later this year. Charge-off rates vary depending on the bank, however.

At Bank of America, the annual net charge-off rate for U.S. cards declined to 13.2 percent in January from 13.5 percent in December, while Capital One said its rate rose to 10.41 percent in January from 10.14 percent in December.

Gail Cunningham, of the National Foundation for Credit Counseling, said she's not surprised if consumers are still leaning on credit cards, especially given the high unemployment rate.

Still, she said she's noticing significant belt tightening.

"People have made a conscious decision to rein in their spending," Cunningham said.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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