Credit Card Debt Continues to Climb

NEW YORK (MainStreet) - Credit card debt continues to rise, according to a new study by online credit card comparison guide CardHub.

Using data from the Federal Reserve, CardHub found that consumer credit card debt had increased by $6.5 billion in the third quarter of 2010, a figure that seemingly contradicts other studies that say credit card debt is actually starting to decline.  

This contradiction stems from the fact that most credit card debt studies fail to account for charge-offs, which occur when creditors consider the debt uncollectable, according to Odysseas Papadimitriou, Cardhub’s CEO and founder. By law, banks and credit card issuers are required to write off loans that are delinquent by 180 days or more. While they legally still can (and do) try to collect on such defaults, the debt is essentially off the books.

“It is the credit equivalent of having your house foreclosed on,” Papadimitriou says, explaining that the law exists to create uniformity in assessing the health of both financial institutions and the consumers borrowing from them. “The debt is no longer considered outstanding.”

While the Fed reported that outstanding credit debt this quarter was $790 billion (down $10.3 billion from the previous quarter) it also reported $16.8 billion in charge-offs. This difference accounts for the $6.5 billion increase.

So while debt this quarter was down 39% compared to a year earlier, it still increased since the last quarter. At least that increase was less than the $9.7 billion that Americans added to their debt in the second quarter, but Papadimitriou expects that Americans are on track to dig themselves into another hole this year.

“Consumers need to understand that they will not be able to revert back to the spending levels they adopted pre-recession,” he said. “Instead, they need to continue to maintain a standard of living that is justified by their salaries.”

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