US Credit Card ‘Defaults’ At Lowest Level Since 1985

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A recent report from CardHub highlights that Americans are beginning to rack up high levels of consumer debt again, barely five years since the financial crisis. Although Americans had been paying down credit card debt until just a few months ago, at the current rate, Cardhub projects that Americans will increase their credit card debt by at least 55% in 2014.

The good news

Consumer credit card debt statistics are an important indicator of spending trends and household financial health. Current credit card debt figures support the notion of a improving economy, both in terms of net growth and the current exceptionally low charge-off rate (bad debt). The current credit card charge-off rate of 2.89% is lowest since 1985, suggesting that most consumers possess the financial resources to remain current on their obligations.

Credit Card Debt

Rising credit card debt

On the other hand, the bad news is that while an improving economy is keeping consumer spending habits sustainable, consumer attitudes toward personal debt have apparently not changed much since the Great Recession. U.S. consumer debt has gone up on a year-over-year basis for four straight quarters, highlighted by a $15.94 billion jump in the third quarter of 2014. This represents a 35% increase over third quarter 2013 and a 25% rise compared to third quarter 2012. Based on this data, CardHub is currently projecting that U.S. consumers will rack up over $60 billion in new credit card debt by the end of 2014 (an increase of at least 55% over 2013).

Credit Card Debt

Blowout second quarter for credit card debt

The CardHub report highlights that for the first time in the past six years, consumers undid nearly all of their standard first quarter paydown during the second quarter. In specific, the $28.5 billion in credit card debt consumers took on in the second quarter wipes away over 86% of the $32.5 billion Americans managed to pay off with tax refunds, holiday cash and annual salary bonuses from January through March.

Credit Card Debt

Of note, this year’s second quarter move up was 46% higher than the next highest second quarter debt buildup (2011), and is almost 200% higher than the increase seen in the second quarter of 2009, when the nation was just beginning to come back from the Great Recession.

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