Will American credit card holders ever learn?
Our apologies in advance for sounding like scolds, but it's only been eight years since the Great Recession brought the U.S. economy to its knees.
You'd think credit card consumers would remember that near disastrous economic experience, but fresh data from CardHub.com show American credit card holders are digging themselves a financial hole they will likely struggle to get out of, especially if the economy slides back into recession, as some experts predict.
"Our end-of-year spending and payment results are in, and we did even worse than expected," CardHub reports in its 2015 Credit Card Debt Study. "Consumers racked up an astounding $52.4 billion in credit card debt during the fourth quarter of 2015. This significant build-up nearly equals the total amount added to our collective tab in 2014 ($57.4 billion) and leaves us with a $71 billion net increase in credit card debt for 2015. Consequently, the average U.S. household with credit card debt now owes $7,879, and Americans have surpassed $900 billion in credit card debt -- a mark last breached in 2007 during the ramp up to the financial system's 2008 collapse, the report states."
So why would card consumers risk so much debt only years after the Great Recession? Lots of reasons, actually -- with hubris among them.
"Americans overspent this holiday season more than they have in the past -- the tab per person was the highest ever at almost $806, and they collectively racked up more credit card debt in Q4 2015 than all of 2014," says Jill Gonzalez, an analyst at CardHub. "Another theory is that low gas prices and full employment across the country has led to an increase in consumer confidence."
Americans ended the year owing $917.7 billion to credit card companies, adds Gonzalez. "If they continue to overspend while allowing debt to rack up, the country will find itself in the midst of another recession," she explains.
Some credit card gurus say rising card debt is inevitable, and is a product of predictable historic trends. "Credit card debt is rising because it has always risen," says Skyler Irvine, co-founder at Myriad Real Estate in Phoenix. "Americans have not forgotten about the Great Recession. In fact, many are still living through it with stagnant wages and rising costs of everything from healthcare to iPhone bills."
But this debt binge could be harder for card consumers to overcome. "Before the recession hit, most Americans were able to pay down their credit card bills by refinancing their homes every few years," Irvine notes. "Today's credit card borrowers are renters with no home equity and no stock market participation."
"Consequently, if their wages do not increase and the cost of everything around them goes up, including their rent, then rising credit card debt has no where to go but up," he adds.
Others say one way out is via balance transfer cards, which can help lower card interest rates, if used correctly.