Consumers Still Buried in Credit Card Debt
Remember a few years ago when millions of Americans spent beyond their means, racked up a bunch of credit card debt, and then ran into trouble when global financial markets tanked and the housing market went under?
It seems old habits die hard, according to a new study by credit card comparison website CardHub, which found that consumers are charging more on their credit cards again.
Americans racked up nearly $48 billion in new credit card debt in 2011, 424 percent more than what they charged in 2010, and 577 percent more than in 2009. Although total outstanding credit rose only about $4 billion, that number was largely offset by the magnitude of consumer defaults—$44.2 billion worth.
“Looking back two years, with the exception of a single quarter, U.S. consumer debt management has consistently worsened,” the report said, noting that the recent trend of consumers paying down debt doesn’t match up with the hard data. “First-quarter pay-downs have become less significant and the amount of new debt added in each subsequent quarter has grown compared to its respective counterparts in the previous two years.”
[See today’s best photos.]
But don’t freak out, the U.S. isn’t headed into another debt-fueled downward spiral just yet. While it’s true that some Americans have had to turn to credit cards to bridge gaps in household finances, there’s another reason for the apparent credit spending spree: credit card rewards.
“There’s a lot of competition on rewards credit cards to attract big spending consumers,” says Greg McBride, senior financial analyst at Bankrate.com. “These are consumers that by and large pay their balances in full every month, so people are spending a lot more on credit cards, but it doesn’t necessarily mean they are carrying bigger balances or accumulating more debt.”