Smart Borrower Blog

Credit Card Debt Nears Pre-Recession High


Mar 22nd, 2017 @ 9:51 AM by Amber Nelson


American consumers have been racking up credit card in a style similar to their pre-financial crisis habits, with spending predicted to reach a ten-year high by the end of 2017.

Total outstanding credit card debt jumped to $978.9 billion in the fourth quarter of 2016, a 7 percent increase from the year before and the highest level of debt since the last quarter of 2008, according to data from WalletHub.com. Americans collectively owe roughly the same amount in credit card debt they did before the housing market crashed and the Great Recession began. WalletHub expects credit card debt to surpass the $1 trillion mark this year.

Charge-off rates, the percentage of loans that credit card companies write-off because of default, have risen to 4.18 percent, up from 3.51 percent the year before. WalletHub analysts see the increase in spending and the rising charge-off rates as a sign that Americans are not managing their money well these days.

“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,” wrote WalletHub’s Alina Comoreanu. If the U.S. economy were to experience declines, Americans many find themselves over-leveraged with debt. Inflation is rising and forecasted to continue its climb this year, possible pushing prices for many goods higher.

Inflation may also be a sign of optimism in the economy though. And with unemployment rates dropping, the economy may be in for a period of growth. While rising, charge-off rates still remain near historical lows. The national debt service ratio – a measure of loan debt payments compared to total disposable income – has also fallen to a 35-year low. Whether the growing amount of credit card debt becomes a country-wide problem or not, depends on the direction of the economy in this coming year.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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