It may be time for some Americans to give their credit cards a break.
According to CardHub’s 2015 Credit Card Debt Study, credit card debt in the United States surged by a whopping $71 billion to $917.1 billion in 2015. That means average household credit card balances have hit a six-year high of $7,879.
Not only is that the largest amount of credit card debt since the Great Recession, that’s just $500 below the “tipping point” for an “unsustainable” amount of debt, according to CardHub CEO Odysseas Papadimitriou.
Although many Americans made the smart choice to reduce their credit-card debt load early in 2015 – including using their tax refunds and any pay increases to pay down about $35 billion in credit card balances in the first three months – it didn’t take long before a growing number of people opted to swipe their credit cards, instead of using cash or a debit card, to pay for their purchases.
Consumers really racked up credit-card debt in the fourth quarter of 2015, tacking on $52.4 billion in new debt. In fact, Americans added more credit card debt in just the fourth quarter of 2015 than was charged in 2009, 2010 and 2011 combined.
So why are Americans using their credit cards so much more these days? There seem to be a few factors motivating consumers to use plastic.
“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.”
And while credit-card spending in the United States is soaring, worker wages have remained stagnant. It’s a potential recipe for disaster that has some financial experts concerned.
“With seven of the past 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits,” CardHub CEO Papadimitriou said. “All of this has us wondering: Is 2016 the next 2008 for credit markets?”
Scott Hoyt, senior director at Moody’s Analytics, told NBC that cardholders need to be selective with their credit card use to prevent digging themselves into a financial hole.
“It is something we need to keep an eye on if borrowing continues to grow rapidly,” Hoyt said. He also said the implications of rising credit card debt would be similar to what happened in the recession, “when consumers became overly leveraged.”
Do you have too much credit card debt? Find out by reading “11 Signs You Have Too Much Credit Card Debt (and What to Do About It).”
What do you think about America’s ballooning credit card debt and how does your card debt stack up? Share your comments below or on our Facebook page.