Americans Ratchet Up Record Credit Card Debt With ‘Bad Habits’
American consumers have amassed record amounts of credit card debt over the past two years, leaving some economists fearful that irresponsible spending is taking the U.S. back to 2008 crisis levels.
Total American credit card debt rose to $917 billion in 2015, breaking predictions that pegged the figure around $900 billion, according to a Monday research report from CardHub. Credit card debt balances now total $7,879 for the average American household. This number is the largest sum since the financial crisis and just $500 shy of what CardHub defines as an “unsustainable tipping point” — when the risk of mass defaults and credit tightening skyrocket.
In 2015 alone, consumers racked up roughly $71 billion in credit card debt, a dramatic 24 percent increase from 2014 levels. Renewed confidence in the economy reportedly explains much of the spending binge, with Americans dropping $52.4 billion in the fourth quarter alone. Total credit card debt in 2014 was $57.4 billion, reports CNBC.
“With 7 of the past 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits,” reads the reports from CardHub CEO Odysseas Papadimitriou. “All of this has us wondering: Is 2016 the next 2008 for credit markets?”
While the report notes that consumers are still responsibly paying off their credit card bills, spending is not slowing down. If these trends persist, consumers will have to start paying back debt at record rates to avoid shrinking credit availability and massive defaults, reports The Fiscal Times.
“While credit card debt levels are trending significantly upward, charge-off rates remain near historical lows and are, in fact, down on a year-over-year basis,” Papadimitriou writes in the report. “Something clearly has to give, and it does not seem to be our spending habits.”
Over the first three months of 2015, consumers diligently paid off $35 billion in credit card debt using year end bonuses and tax credits, however they did not relent on spending. Consumers eradicated the debt repayments with the largest three quarter credit card spending spree CardHub has registered since the report’s inception in 2009. The implications of the troubling trend extend throughout financial markets and political policy making.
“With the global economy showing signs of extreme volatility and debate raging over both the timing and frequency of Federal Reserve rate hikes, data that speaks to the financial health of the average American household can be quite telling,” Papadimitriou writes in the report.
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