U.S. consumers racked up $21.9 billion in credit card debt during Q3 2016, which is the seventh-largest third-quarter accumulation in the last 30 years, according to the personal-finance website WalletHub’s 2016 Credit Card Debt Study, released today. We are now on track to finish 2016 with an $80 billion net increase in credit card debt.

With that in mind, here are some tips that consumers should follow to reach debt freedom as quickly and inexpensively as possible:

  • Make a Budget & Stick to It – Rank-order your expenses – including debt payments, emergency fund contributions and other savings – and trim the fat until the amount you earn exceeds the amount you spend. It doesn’t take long for luxuries to begin to feel like necessities, so cut liberally.
  • Build an Emergency Fund – Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account. And you should actually start the process before getting serious about paying off debt. Otherwise, you’d simply be too vulnerable.
  • Improve Your Credit & Do a Balance Transfer – A higher credit score will help you save on everything from loans and lines of credit to insurance policies. You also need at least good credit to score a decent 0% balance transfer credit card. If you would like more guidance on ways to improve your credit, visit AAACreditGuide for more information.
  • Try the Island Approach for Better Card Terms – Using the same card to make everyday purchases and carry a balance from month to month is a mistake. It increases the amount that accrues interest and forces you to settle in terms of either rewards or low rates. The Island Approach – designating multiple cards for specific types of transactions – solves both problems.
  • Pay Off Debt with the Snowball Method – Devote the majority of your monthly debt payment to the balance with the highest interest rate, while making minimum payments on any other balances you may owe. Then repeat the process when your most expensive debt is gone.

2016 Credit Card Debt Study

Credit card debt statistics speak to the financial health of American households and can foretell overleveraging bubbles that may trigger constriction across lending markets. From that perspective, the fact that U.S. consumers racked up a record-setting $21.9 billion in credit card debt during the third quarter of 2016 represents serious cause for concern.

Not only was it the largest third-quarter debt increase since 2007 and the seventh-largest in the last 30 years, but our dismal Q3 2016 performance also comes on the heels of three equally foreboding financial feats, appearing to solidify an ominous trend. We set the Q2 record last quarter, racking up $34.4 billion in new debt, right after recording the smallest Q1 pay-down ($27.5 billion) since 2008. And last year, we added the most credit card debt to our tab ($71 billion) since 2007.

So it is not a question of whether consumers are weakening financially, but rather how long this trend toward pre-recession habits will last and just how bad it will get. Unfortunately, the immediate forecast does not appear too bright. WalletHub projects that we’ll end 2016 with a net increase of roughly $80 billion in credit card debt, which would bring outstanding balances within striking distance of 2008’s all-time record and push the average amount owed by indebted households to a perilous $8,380.

Main Findings

Outstanding credit card debt is at the highest point since the end of 2008, and Q3 did nothing to divert us from a collision course with the $1 trillion mark.

Credit Card Debt

The $21.9 billion in credit card debt that we added in Q3 2016 is nearly 60% above the post-Great Recession average.

Credit Card Debt

WalletHub expects U.S. consumers to end 2016 with an $80 billion net increase in credit card debt.

Credit Card Debt

We now owe almost exactly as much as we did the quarter before the Great Recession officially began. If charge-off rates begin to rise, things could get ugly fast.

Q3 2016 Q3 2007
Charge-Off Rate 2.86% 3.95%
Debt Accumulation $21.9 billion $38.3 billion
Total Outstanding Credit Card Debt $927.1 billion $927.4 billion

 

With 16 of the last 23 quarters reflecting year-over-year regression in consumer performance, it’s clear that we’ve reverted to pre-downturn bad habits.

Credit Card Debt

The average indebted household’s balance rose to $7,941 in Q3 – just $523 below the tipping point WalletHub identified as being unsustainable.

Credit Card Debt

The fact that charge-off rates remain near historical lows continues to fuel lenders’ appetites for extending credit, but there will be a tipping point eventually.

Credit Card Debt

Tips For Managing Debt

  1. Make a Budget (and Stick to It): It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That is why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. And most importantly, once you develop your budget, make sure to stick to it or else you’ll have simply wasted your time.
  2. Build an Emergency Fund: With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.
  3. Improve Your Credit: This might sound a bit counterintuitive, considering that increased access to credit provides more opportunity to incur debt, but improving your credit standing will have a dramatic impact on the cost of your debt and, thus, how quickly you can pay it off. Better credit can also make it easier to find a job or a place to live – both of which impact your bottom line.

You can determine your starting point and get personalized advice by signing up for our sister site WalletHub, which provides free credit scores, full credit reports and various other helpful tools.

  1. Try the Island Approach: The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.
  2. Use the Snowball Method to Strategically Pay Off Amounts Owed: In order to become debt free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.
  3. Evaluate Your Job Situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.

Raw Data

Net Result of Consumer Credit Card Debt Q1 2008 – Q3 2016

Net Result in Debt Load Relative to Same Period
Last Year
Relative to Same Period Two Years Ago
2016 Q3 $21,920,429,766 3% 34%
2016 Q2 $34,391,663,006 7% 20%
2016 Q1 -$27,534,385,371 -21% -14%
2015 $70,951,951,615 19% 78%
2015 Q4 $52,313,840,720 13% 21%
2015 Q3 $21,308,436,904 30% 78%
2015 Q2 $32,185,674,481 12% 88%
2015 Q1 -$34,856,000,489 9% 7%
2014 $59,437,019,459 49% 65%
2014 Q4 $46,390,133,673 8% 15%
2014 Q3 $16,391,820,497 37% 30%
2014 Q2 $28,703,785,213 67% 63%
2014 Q1 -$32,048,719,923 -1% -7%
2013 $39,818,156,291 11% -15%
2013 Q4 $43,121,181,906 7% -2%
2013 Q3 $12,002,840,689 -5% -26%
2013 Q2 $17,150,309,195 -3% -11%
2013 Q1 -$32,456,175,499 -6% -0.3%
2012 $35,993,398,304 -23% 1355%
2012 Q4 $40,184,756,260 -9% 56%
2012 Q3 $12,577,625,228 -23% 126%
2012 Q2 $17,610,165,987 -9% 83%
2012 Q1 -$34,379,149,171 6% -11%
2011 $46,978,098,297 1799% 5623%
2011 Q4 $43,937,806,550 71% 95%
2011 Q3 $16,240,562,954 192% 35%
2011 Q2 $19,363,825,036 102% 106%
2011 Q1 -$32,564,096,243 -15% -27%
2010 $2,473,689,486 391% -96%
2010 Q4 $25,738,332,310 14% -29%
2010 Q3 $5,558,050,211 -54% -59%
2010 Q2 $9,609,620,560 2% -59%
2010 Q1 -$38,432,313,595 -14% 123%
2009 -$850,556,850 102% 101%
2009 Q4 $22,493,335,633 -38% -65%
2009 Q3 $12,007,388,079 -12% -69%
2009 Q2 $9,416,624,804 -60% -71%
2009 Q1 -$44,767,905,366 159% 104%
2008 $56,171,073,844 -50% -42%
2008 Q4 $36,133,211,157 -44% -34%
2008 Q3 $13,716,647,195 -64% -46%
2008 Q2 $23,574,779,971 -26% -5%
2008 Q1 -$17,253,564,479 -21% 106%

Net Result in Debt Load – Green indicates that consumers decreased their debt relative to the previous quarter. Red indicates they increased their debt relative to the previous quarter.

Relative to Same Period – Green indicates that consumers either paid down more debt or accumulated less debt than they did in the previous two years. Red indicates that they either paid down less debt or accumulated more debt than they did in the same quarter in the previous two years.

Consumer Credit Card Debt and Charge-off Data (in Billions):

Total Outstanding Credit Card Debt Change in Outstanding Credit Card Debt Quarterly Credit Card Charge-Off in Dollars Net Result in Debt Load
2016 Q3 $927.1 $15.2 $6.6 $21.9
2016 Q2 $911.9 $27.3 $7.1 $34.4
2016 Q1 $884.6 -$34.5 $7 -$27.5
2015 $919.1 $25.5 $71
2015 Q4 $919.1 $45.6 $6.7 $52.3
2015 Q3 $873.5 $15.3 $6 $21.3
2015 Q2 $858.2 $25.7 $6.5 $32.2
2015 Q1 $832.5 -$41.2 $6.3 -$34.9
2014 $873.7 $26.3 $59.4
2014 Q4 $873.7 $39.9 $6.5 $46.4
2014 Q3 $833.8 $10.4 $6 $16.4
2014 Q2 $823.4 $21.6 $7.1 $28.7
2014 Q1 $801.8 -$38.7 $6.7 -$32.0
2013 $840.5 $28.1 $39.8
2013 Q4 $840.5 $36.1 $7 $43.1
2013 Q3 $804.4 $5.6 $6.4 $12.0
2013 Q2 $798.8 $9.9 $7.2 $17.2
2013 Q1 $788.9 -$39.9 $7.5 -$32.5
2012 $828.8 $31.9 $36
2012 Q4 $828.8 $32.3 $7.8 $40.2
2012 Q3 $796.5 $5.2 $7.4 $12.6
2012 Q2 $791.3 $9.4 $8.2 $17.6
2012 Q1 $781.9 -$42.8 $8.4 -$34.4
2011 $824.7 $44.9 $47
2011 Q4 $824.7 $34.6 $9.3 $43.9
2011 Q3 $790.1 $5.1 $11.1 $16.2
2011 Q2 $785 $8.4 $11 $19.4
2011 Q1 $776.6 -$46.0 $13.5 -$32.6
2010 $822.6 $77.8 $2.5
2010 Q4 $822.6 $9.9 $15.8 $25.7
2010 Q3 $812.7 -$11.9 $17.4 $5.6
2010 Q2 $824.6 -$13.0 $22.6 $9.6
2010 Q1 $837.6 -$60.4 $22 -$38.4
2009 $898 $85.3 $-0.9
2009 Q4 $898 -$0.4 $22.9 $22.5
2009 Q3 $898.4 -$10.6 $22.7 $12.0
2009 Q2 $909 -$12.8 $22.2 $9.4
2009 Q1 $921.8 -$62.4 $17.6 -$44.8
2008 $984.2 $53.9 $56.2
2008 Q4 $984.2 $20.7 $15.5 $36.1
2008 Q3 $963.5 -$0.3 $14 $13.7
2008 Q2 $963.8 $10.4 $13.2 $23.6
2008 Q1 $953.4 -$28.4 $11.2 -$17.3
2007 $981.8 $36.7 $113.1
2007 Q4 $981.8 $54.4 $10.3 $64.7
2007 Q3 $927.4 $29.2 $9.2 $38.3
2007 Q2 $898.2 $23.3 $8.6 $31.9
2007 Q1 $874.9 -$30.5 $8.6 -$21.9
2006 $905.4 $30.3 $96.2
2006 Q4 $905.4 $46.4 $8.2 $54.6
2006 Q3 $859 $17.0 $8.3 $25.3
2006 Q2 $842 $17.3 $7.4 $24.7
2006 Q1 $824.7 -$14.8 $6.4 -$8.4
2005 $839.5 $38.9 $70.6
2005 Q4 $839.5 $37.2 $12.7 $49.9
2005 Q3 $802.3 $10.6 $8.7 $19.3
2005 Q2 $791.7 $13.7 $8.6 $22.3
2005 Q1 $778 -$29.9 $8.9 -$21.0
2004 $807.9 $38.4 $71.7
2004 Q4 $807.9 $31.0 $9.5 $40.6
2004 Q3 $776.9 $18.1 $8.5 $26.6
2004 Q2 $758.8 $5.6 $10.2 $15.8
2004 Q1 $753.2 -$21.4 $10.1 -$11.2
2003 $774.6 $43.8 $61.7
2003 Q4 $774.6 $25.2 $11.8 $36.9
2003 Q3 $749.4 $5.3 $10.1 $15.4
2003 Q2 $744.1 $8.5 $11.3 $19.8
2003 Q1 $735.6 -$21.1 $10.6 -$10.4
2002 $756.7 $46.2 $82.5
2002 Q4 $756.7 $30.1 $10.7 $40.8
2002 Q3 $726.6 $12.0 $10.8 $22.7
2002 Q2 $714.6 $17.4 $11.2 $28.6
2002 Q1 $697.2 -$23.2 $13.6 -$9.6
2001 $720.4 $37.7 $69.9
2001 Q4 $720.4 $29.5 $11.6 $41.0
2001 Q3 $690.9 -$3.9 $9 $5.1
2001 Q2 $694.8 $14.5 $9.1 $23.7
2001 Q1 $680.3 -$7.9 $8 $0.1
2000 $688.2 $28.6 $101.9
2000 Q4 $688.2 $43.4 $8.1 $51.5
2000 Q3 $644.8 $20.6 $6.9 $27.5
2000 Q2 $624.2 $19.7 $6.5 $26.3
2000 Q1 $604.5 -$10.4 $7 -$3.4
1999 $614.9 $27 $56.3
1999 Q4 $614.9 $22.9 $7.1 $30.0
1999 Q3 $592 $10.9 $6.5 $17.4
1999 Q2 $581.1 $13.4 $6.3 $19.7
1999 Q1 $567.7 -$18.0 $7.1 -$10.8
1998 $585.7 $29.1 $70.4
1998 Q4 $585.7 $29.9 $7.7 $37.7
1998 Q3 $555.8 $7.1 $7.3 $14.4
1998 Q2 $548.7 $23.9 $7.2 $31.1
1998 Q1 $524.8 -$19.6 $6.9 -$12.8
1997 $544.4 $27.3 $57.8
1997 Q4 $544.4 $27.3 $7.5 $34.8
1997 Q3 $517.1 $13.5 $6.9 $20.4
1997 Q2 $503.6 $8.0 $6.8 $14.8
1997 Q1 $495.6 -$18.3 $6.1 -$12.3
1996 $513.9 $21.3 $79.6
1996 Q4 $513.9 $38.9 $6.1 $45.0
1996 Q3 $475 $12.7 $5.3 $18.0
1996 Q2 $462.3 $15.2 $5.2 $20.5
1996 Q1 $447.1 -$8.5 $4.7 -$3.9
1995 $455.6 $14.4 $94.5
1995 Q4 $455.6 $37.1 $4.6 $41.7
1995 Q3 $418.5 $24.8 $3.8 $28.6
1995 Q2 $393.7 $19.8 $3.3 $23.1
1995 Q1 $373.9 -$1.6 $2.7 $1.2
1994 $375.5 $10.5 $67.5
1994 Q4 $375.5 $33.8 $2.9 $36.8
1994 Q3 $341.7 $17.1 $2.5 $19.5
1994 Q2 $324.6 $14.5 $2.5 $17.0
1994 Q1 $310.1 -$8.4 $2.6 -$5.9
1993 $318.5 $11 $43.1
1993 Q4 $318.5 $26.2 $2.7 $28.9
1993 Q3 $292.3 $11.2 $2.6 $13.8
1993 Q2 $281.1 $5.0 $2.9 $7.9
1993 Q1 $276.1 -$10.3 $2.8 -$7.5
1992 $286.4 $12.6 $27.4
1992 Q4 $286.4 $19.7 $3.3 $23.0
1992 Q3 $266.7 $4.2 $2.9 $7.1
1992 Q2 $262.5 $4.0 $3.2 $7.2
1992 Q1 $258.5 -$13.0 $3.2 -$9.9
1991 $271.5 $11.5 $37.2
1991 Q4 $271.5 $18.9 $3.2 $22.1
1991 Q3 $252.6 $7.9 $3 $10.9
1991 Q2 $244.7 $5.7 $2.9 $8.5
1991 Q1 $239 -$6.9 $2.5 -$4.4
1990 $245.9 $7.8 $35.9
1990 Q4 $245.9 $16.9 $2.4 $19.3
1990 Q3 $229 $10.0 $2 $11.9
1990 Q2 $219 $8.4 $1.8 $10.2
1990 Q1 $210.6 -$7.2 $1.6 -$5.6
1989 $217.8 $6.3 $33.6
1989 Q4 $217.8 $19.8 $1.8 $21.6
1989 Q3 $198 $6.0 $1.5 $7.6
1989 Q2 $192 $7.3 $1.5 $8.8
1989 Q1 $184.7 -$5.9 $1.4 -$4.4
1988 $190.6 $5.7 $30
1988 Q4 $190.6 $17.8 $1.6 $19.3
1988 Q3 $172.8 $4.9 $1.4 $6.3
1988 Q2 $167.9 $5.8 $1.4 $7.3
1988 Q1 $162.1 -$4.1 $1.3 -$2.9
1987 $166.2 $5 $25.4
1987 Q4 $166.2 $13.9 $1.4 $15.4
1987 Q3 $152.3 $6.8 $1.2 $8.0
1987 Q2 $145.5 $7.0 $1.2 $8.2
1987 Q1 $138.5 -$7.4 $1.2 -$6.2
1986 $145.9 $4.5 $21.5
1986 Q4 $145.9 $12.4 $1.3 $13.6
1986 Q3 $133.5 $3.1 $1.1 $4.3
1986 Q2 $130.4 $4.3 $1.1 $5.4
1986 Q1 $126.1 -$2.8 $1 -$1.8
1985 $128.9 $2.9 $131.8
1985 Q4 $128.9 $13.7 $1 $105.1
1985 Q3 $115.2 $6.2 $0.8 $5.0
1985 Q2 $109 $4.4 $0.6 $7.0
1985 Q1 $104.6 $104.6 $0.5 $14.7

*Numbers may differ from year to year due to the fact that the Federal Reserve regularly retroactively updating figures. Questions or requests for information can be directed to our media department.

Article by Alina Comoreanu, WalletHub