Credit card balances approach record high in 2016

Americans have a very short memory. We are only 7 years or so past the end of the great recession and millions of families have once again run up their personal debts. In fact, per the latest Federal Reserve statistics households are now carrying almost one trillion dollars in balances on their personal credit card accounts. At this pace it is very likely that by the end of 2016 the average American will owe more money on their credit cards than at any time in history.

There was a period of time from around 2008 to 2011 in which Americans were relying more on cash for purchasing their “needs and wants”. In general, people were concerned about falling too far into debt and they were fearful of some of the policies in place by the big banks. They learned some of the lessons from recession in which millions of families lost their homes to foreclosure and/or needed to file bankruptcy.

During this time-frame there was even a trend toward saving money vs. consuming. In fact, the aggregate card card balances was about 800 billion dollars in 2010, or 25% lower than in 2016. This shows that households were not running up a balance and were much more cautious in how they were using their credit cards.

Now, fast forward to 2016. Not only do Americans owe close to (and will soon surpass) one trillion dollars, but there will also be a projected 100+ million store as well as general-purpose credit cards issued in 2016, which is about 30% more than 2010. It is incredible how quickly that has changed. Both of these are records.

The culture in America not only encourages “consuming” (such as “keep up with the Joneses”) but it also encourages people to have a short memory. Families forget how difficult it was to pay back their debts when the economy slows or how challenging it is to keep up with their mortgage. The stats that support this are too numerous to account. Examples include about 25% of Americans have no emergency savings, credit card balances and auto loans balances due are at a record high, people providing less up front money when buying a home, etc.

With over a trillion dollars owed, many families are bound to need help. There are various resources that can offer households help with debt, including counseling and programs offered by lenders. Ideally households should explore these solutions first, before the time comes when their financial situation changes or a crisis occurs.

Sub-prime borrowers are also opening credit card accounts, and taking on debt, at a pace not seen since 2007. Per the Federal Reserve, there were about 10.5 millions cards issued in 2015, exceeding 2007 levels (which was right before the great recession). These sub-prime borrowers have poor credit scores, usually tend to live paycheck to paycheck, and may not even clearly understand the risks they are taken on.

This cycle of spending, consuming, and opening new credit card accounts is very risky for individual consumers as well as the economy in whole. As soon as the economy and/or job market slows (which it will), and people either start to lose their jobs or can’t find a new one, then it makes it very difficult to pay back over 1 trillion dollars in debt!

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