Will Consumers Last Until Christmas? Credit Card Debt Crisis Out Of Control
By Michael Snyder/Economic Collapse Blog August 31, 2023
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We aren't quite there yet, but an enormous credit card debt crisis is definitely brewing. Americans are becoming increasingly dependent on their credit cards to make ends meet from month to month, the percentage of us that are carrying balances from month to month is growing, and the average rate of interest on such balances has risen above 20 percent.
If you can possibly avoid it, do not carry credit card balances from month to month, because that will strangle you financially.
Unfortunately, our young people are never taught this in school, and so many of them get into deep financial trouble when they become adults. And once you get into deep financial trouble, it can take many years to get out of it.
In all my years, I have never seen numbers like we are witnessing right now. The following are 8 signs that we are right on the verge of a major credit card debt crisis...
#1 The total amount of credit card debt in the United States has surpassed the one trillion dollar mark and is now at the highest level ever recorded...
The New York Federal Reserve reported earlier in August that total credit card debt surged to $1.03 trillion during the three-month period from April to June, an increase of $45 billion - or 4.6% - from the previous quarter. It marks the highest level on record in Fed data dating back to 2003.
#2 The average rate of interest on credit card balances has now risen to a new all-time record high of 20.63 percent...
The dual increase in credit card usage and delinquency rates is particularly concerning because interest rates are astronomically high right now. The average credit card annual percentage rate, or APR, hit a new record of 20.63% last week, according to a Bankrate database that goes back to 1985.
#3 A whopping 47 percent of all U.S. cardholders are now carrying balances from month to month...
Many cardholders from all age and income groups are carrying over credit card balances, with 47 percent saying they do so -- up from 39 percent in December 2021 -- the survey (carried out in July) finds. Agewise, 53 percent of Gen Xers carryover card balances from month to month. Next were Gen Z consumers (52 percent) followed by millennials, (49 percent) and baby boomers (41 percent).
#4 The average credit card debt level in the United States just continues to grow...
The national average credit card debt grew to $7,227, according to the survey.
However, U.S. consumers in some states held more debt than others. Connecticut's residents had the highest average debt level of $9,408, surpassing the national average by 30%, according to the survey. Right behind it were credit card holders in New York, registering the second-highest average debt of $9,165.
#5 Most Americans are not running up credit card debt because they are making frivolous purchases. According to one industry insider, most Americans are doing it "because they are under financial strain"...
Bankrate.com analyst Greg McBride said that "people aren't financing purchases at 20% because everything is going swimmingly. They're doing so because they are under financial strain.
#6 The number of credit card delinquencies in the U.S. has surged dramatically over the past two years...
The rising number of delinquent accounts also indicates people are having a hard time keeping up with credit card payments. The number of accounts past due by one cycle has increased 42.6% over the last two years. Delinquencies have crept up to the highest level since 2017.
#7 One recent survey discovered that many Americans that actually use personal loans to consolidate credit card debt end up quickly running up new credit card balances close to their previous levels...
A survey conducted by TransUnion between April 2021 and September 2022 found that borrowers who used a personal loan to consolidate their credit card debt saw their balances decrease by 57% on average, but for many, those balances returned close to their previous levels 18 months later.
#8 At a time when economic conditions are slowing down all over the nation, Americans are becoming increasingly dependent on their credit cards...
In fact, two in five Americans with credit cards said they were more dependent on their credit cards than ever before, the survey found. And 35% said they won't be able to pay off their credit card debt before the end of the year. In addition, another 35% of respondents said they'd likely max out at least one credit card by the end of 2023.
"This increased reliance on credit cards is likely to lead many even deeper into debt - which is especially troublesome with interest rates well into the double digits," Quicken said in its report.
Unfortunately, a lot more Americans are likely to get into credit card trouble in the months ahead, because the labor market is getting significantly tighter.
In fact, we just got some new numbers that have created quite a bit of alarm...
With consensus expecting only a modest drop in the July job openings from 9.582 million to 9.5 million, what the BLS reported instead was a doozy: in July there were just 8.827 million job openings, the first sub-9 million print since March 2021. It was also the 3rd biggest miss on record!
Worse, had the BLS not drastically slashed the May number from 9.582MM to a laughable 9.165MM, the drop would have been almost 800K job openings. And yes, today's downward revision...
... continues the recent trend of every single data point in the Biden administration being revised sharply lower in subsequent months, in a coordinated propaganda attempt to make the economy look stronger, then quietly revise it away when everyone forgets.
The economy is clearly headed for a very rough period, and the long-term outlook is even worse.
So now is not the time to pile on more debt.
Instead, now is a time to batten down the hatches.
I would very much encourage you to get "lean and mean" financially, because those that are carrying high levels of debt are likely to experience a lot of pain during the stressful years ahead.
Originally published at The Economic Collapse Blog - reposted with permission.
