Spending on credit cards has risen so much that worries about an overleveraged consumer economy are beginning to surface.
A CardHub study on credit card debt has spurred a post on the Squared Away blog at the Center for Retirement Research at Boston College that asks whether we're on our way to another credit debacle in the event of a downturn in the economy.
While the first three months of 2015 saw consumers paying down credit card balances with tax refunds and annual salary bonuses, the trend reversed itself for the remaining three quarters of the year. "The new credit card debt added in the second, third and fourth quarters of 2015 were the highest quarterly totals since 2009," the post said.
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But the capper was the final quarter of 2015, during which "Americans added $52.4 billion to what they owe on their credit cards. For context, that is nearly as much as was added to cards in all of 2014," the post added.
To add to the storm warnings, "defaults on the next-generation debt problem continued unabated," with the St. Louis Fed reporting that 90-day student loan delinquencies during 2015 continued at 11%: double the rate of 10 years ago.
CardHub CEO Odysseas Papadimitriou cited an extremely volatile global economy and the disagreement over when, whether and how much the Federal Reserve should hike interest rates as contributing to an atmosphere in which credit card debt may suddenly go from an indication of a prosperous economy chugging along to a bunch of overleveraged consumers.
That reversal in debt payoffs that occurred between Q1 2015 and Q4 2015 could be troubling under the circumstances, since such a large (and fast) increase in debt could mean that lots of people have bitten off more than they can chew by spending too freely against tomorrow's income.
Papadimitriou wrote on the company's website, "As a result, the average household with credit card debt now owes $7,879, and we are perilously close to a tipping point at which balances become unsustainable and delinquency rates skyrocket, which could lead to a considerable constriction in credit availability. All of this has us wondering: Is 2016 the next 2008 for credit markets?"
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
