The United States has managed the unthinkable, and not in a good way: our consumer credit card debt is officially worse , according to “Bloomberg Magazine’s Online Edition” than it was just before the financial system almost collapsed back in 2008. In fact, it’s the worst it’s ever been in all of U.S. history. Research from the Federal Reserve shows that U.S. debt reached over $1 trillion in June; and each month demonstrates a scary reality about how quickly we’re borrowing money. In May, for instance, consumer borrowing jumped another $18.4 billion, the biggest increase since November’s $25 billion hike!
Many people still rely so heavily on credit cards, even though they’re one of the most expensive and unsecure ways to borrow money; although household incomes have increased over the last decade within the U.S., it’s still not enough to keep up with the rising cost of living. In other words, many people are overspending — big time.
Record Household Debt Levels
Outside of credit cards, other spending habits don’t appear to be much better. Overall household debt, which includes mortgages, student loans, car loans and credit card was approximately $12.73 trillion as of the first financial quarter of this year; making it yet another record year for debt.
Part of the problem is the number of people who are defaulting on credit cards and auto loans. For delinquent credit card balances alone, there was an almost 10 percent increase from the previous year of people not making their loan payments on time. This is further intensified by loan loss provisions, which is what credit card providers use to cover missed payments. The more people default, the more providers are required to cover — and this number, too, is rising. Synchrony Financial, one of the biggest providers of store cards, saw a 30% year-on-year jump. American Express’s loan loss provisions went up 26% from last year. Capital One saw an increase from 4.07% to 5.1% in the share of balances it couldn’t collect. Furthermore, lenders are increasingly giving consumers with below average credit scores access to credit cards, albeit with lower limits. Still, these people are less likely to pay off what they owe on time.
Solutions to Lowering Your Debt
If you’re thinking that this concerning pattern can’t go continue, you’re right: “We simply can’t keep taking on credit card debt forever without it causing major problems,” says Matt Schulz, the senior analyst for the website CreditCards.com. “This record probably won’t be a major tipping point, but it likely isn’t too far off.”
It’s too easy to spend without ever considering the consequences. Borrowing more than you can pay back can lead to disaster: problems paying bills, eviction and even bankruptcy.