Another sign the economy is making a comeback: During the recession, Americans gave their plastic a rest. But for the first time in years, credit card debt is increasing.
This post comes from partner site LowCards.com.
Credit card balances grew in December for the first time since August 2008, an indication that consumers may be feeling better about their personal finances and the economy in general.
The latest Federal Reserve Consumer Credit report, released Monday, showed that revolving credit, which is primarily credit card debt, increased in December at an annual rate of 3.5 percent, the first increase in 27 months. The total credit card debt outstanding on Dec. 31 was a seasonally adjusted $800.5 billion, an increase of $2.3 billion from November.
Credit card debt has declined 18 percent since August 2008, when it was $974 billion. Credit card balances started dropping after the financial collapse.
Consumers and issuers both contributed to this decline. Cardholders reduced their use of credit cards and some turned instead to using debit cards. Issuers also reduced their own lending risk, slashed credit limits on millions of existing accounts and closed riskier accounts.
During this time, issuers also raised interest rates to make up for the revenue they lost during the recession and from Congressional regulations. In August 2008, the average credit card rate was 12.04 percent, according to the LowCards Complete Credit Card Index.
Today, the average rate is 14.08 percent. Some financial experts see this latest increase as good news for the economy. Rising credit card use could mean the economy is improving for some households, that consumers have survived the worst of the recession, and they were ready to shop during the holidays. It certainly helps explain the strong holiday shopping numbers that retailers enjoyed.
“While this could be seen as a positive sign for the economic recovery, consumers still need to be extremely cautious with their credit card balances,” warns Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “Interest rates are very high and will likely increase. It is fine to use your credit card for making purchases as long as you pay off your balance in full on time each month. If you fail to do this, your personal finances will start to suffer. That type of spending and improper use of credit is what led to so many economic problems two years ago.”
If you’d like to see the latest Federal Reserve Consumer Credit statistics, you can check them out here.