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Credit card use up as consumers return to pre-Great Recession spending levels

Credit-card-debtCredit card spending is up substantially, and CardHub, a credit card comparison website, thinks it’s a problem along with other economic factors such as volatility in the global economy and the possibility of the Federal Reserve interest rate hikes.

Consumers racked up $32.1 billion in new balances during the second quarter of 2015, according to CardHub’s latest Credit Card Debt Study.

This is the largest second-quarter increase in spending since the study began in 2009, and it erased nearly the entire first quarter paydown and put the country on pace to end the year with a more than $60 billion net increase in credit card debt.

The study also found:

  • With seven of the past 10 quarters reflecting more and more credit card spending, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits. 

  • CardHub expects outstanding credit card debt to be more than $900 billion by the end of the year, bringing the average indebted household’s balance to $7,813 – the highest amount since the Great Recession and $615 below the tipping point CardHub has identified as being unsustainable. 

  • While credit card debt levels are trending significantly upward, charge-off rates remain near historical lows and are down on a year-over-year basis. 

CardHub’s report also offers tips for managing debt:

  1. Make a Budget – and Stick to It: It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it’s allotted to. That is why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. And most importantly, once you develop your budget, make sure to stick to it.
  1. Build an Emergency Fund: With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.
  1. Try the Island Approach: The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they’re a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a zero percent credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.
  1. Use the Snowball Method to strategically pay off amounts owed: In order to become debt free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.
  1. Evaluate your job situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may need to evaluate whether there’re higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable.
Copyright 2015, Rita R. Robison, Consumer Specialist

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