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Consumers Pile On Billions In Debt

by Chris Poindexter

Consumer credit card debt has reached a seven year high and there’s no sign that consumers are going to lay off the spending anytime soon. Last year credit card debt moved higher by seventy-one billion dollars to $917.7 billion, data that comes from CardHub.com. The last time consumer credit card debt was this high was before the Great Recession of 2008.

It would be unfair to say consumer debt caused the last great recession, that dubious honor belongs to big banks and investment houses. It would be equally unfair to say that massive credit card debt wasn’t a factor in making the recession more painful and a harder hit to consumers as millions got caught with crippling credit card balances when the pink slips started going out. Now we know how long it takes before people forget the lessons of the past and start returning to bad habits. The United States has turned into a nation that runs on plastic.

Cards Everywhere

On average American consumers carry two point six credit cards. Roughly a fifth have three or four credit cards, nine percent had six cards and seven percent had more than seven credit cards. Seriously, if you’re one of the those people with more than seven credit cards, you need to sit down and take a hard look at your spending. Just the annual fees on seven cards could add up to more than $500.

Average Debt On The Rise

Credit card balances are also on the rise. Of cardholders who ran a balance, the average was up to $7,879. That is very close to the point when credit card balances and charge offs started kick in in 2009. Some experts consider the current average to be unsustainable.

Tax Refund Season

There’s always a shock factor that kicks in when consumers open their post-Christmas credit card bill and, in a moment of responsibility, use their income tax refunds to pay down the balance. That’s why consumer debt always dips in the first quarter before steadily rising again the rest of the year. The data we’re looking at today comes from Q4 of 2015 and tells us that, overall, people felt better about the economy and were voting with the plastic in their wallets. Next quarter the numbers may not look quite as dire but, make no mistake, the numbers will rise back up to the red zone by the end of the year.

All We Need Is a Spark

No financial disaster is caused by just one thing. That was true in 2008, in 1999, 1929 and it’s true today. In 2008 we had the housing market collapse but what triggered all the layoffs was the lockup of the credit markets. What turned that into a death spiral was a combination of layoffs, credit card debt and inflated home values. Without the load of credit card debt it’s hard to say how many more might have found a way to limp through the lean times until they were able to find another job. For millions all that credit card debt was the final nail in the coffin for their post-layoff finances.

The Lesson Is Obvious

The time to get religious about credit card debt is not when some disaster strikes the economy and the pink slips start flying, the time to get a grip on debt is right now. The economy is still in good shape, jobs are out there, companies are hiring. If you’re not sure whether you could survive a layoff, add up your monthly payments and divide it by the amount you have in savings. That’s your number for finding another job and getting money rolling in.

These are survival financial numbers, that doesn’t even begin to touch saving money and investing for retirement. If our nation can’t get a grip on credit card debt, how are they ever going to get by on a fixed income? Our collective financial future looks very grim indeed.

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