Credit Card Debt Could Reach $1 Trillion This Year?
How much do Americans collectively owe in credit card debt? The way things are headed it could be as much as $1 trillion by the end of 2016 which would be a new record. It may seem strange that the amount of debt is actually growing while the economy is improving but it seems that, while consumers are spending more, they’re getting slower at paying off their debts. According to MarketWatch U.S. consumers racked up $71 billion in credit card debt throughout 2015. Meanwhile only $26.8 billion — or 38% — was paid in the first quarter of this year. This means that Q1 2016 saw the worst first quarter debt reduction since 2008. Q2 is looking slightly better and could reach a total of $30 billion in debt paid down. Part of the reason for the increase in spending is rising consumer confidence levels meaning that Americans are feeling more secure in their jobs and with the economy as a whole. In fact economists say that credit card spending is actually a good sign when it comes to measuring economic recovery. But should we be more concerned about debt trending upward? Apparently not yet.
Despite the climbing debt figure, it seems that more consumers have the ability to pay off those debts. Evidence of this can be found in the fact that charge offs — a term used when debts are unlikely to be collected — are at “near-historic lows” according to MarketWatch. In the face of this seemingly strange inconsistency, some argue that the amount of total debt isn’t even the number we should be focusing on. Instead they suggest looking at the median household debt, which currently is a much more reasonable and manageable $2,300. While this data implies that that the majority of Americans are keeping up with their credit card debts overall, I’m not as quick to write off the $1 trillion figure as insignificant. Even if it seem that the numbers are skewed by a few “bad apples” accruing massive amounts of debt, what’s to say that more consumers won’t soon join that camp? For the record, student debt now totals $1.3 trillion and so it’s clear that U.S. consumers have a lot of catching up to do when it comes to paying off what they owe.