U.S. Credit Card Debt Hits Record High
The Federal Reserve, in their monthly report released Monday, noted that American credit card debt has reached a record high. The current amount of credit card debt owed by Americans is $1.023 trillion. That figure pushes narrowly past the $1.021 trillion high water mark set in April 2008, just before the housing and credit bubbles burst causing the financial crisis.
The news is not all bad, however. Increased credit card debt usually comes with an increased confidence in the economy. With unemployment low and incomes on the rise, people are more willing to spend money and enter into consumer credit card debt.
Because incomes today are higher than in 2008, the amount of credit card debt doesn’t pose the same risk to the economy that it did back then. The ratio of credit card debt to U.S. gross domestic product is about 5 percent, compared with 6.5 percent in 2008.
However, just because the amount of debt is not as critical as it was in 2008, it does not mean that there is no cause for concern. The rate of credit card delinquencies, while still below the 15 percent rate reached in 2008, has increased to 7.5 percent from 7 percent a year ago. This could cause trouble if the economy and labor market take a downward turn.
In addition to credit card debt, there is more student loan debt than in 2008. Student debt is currently about $671 billion higher than it was at its 2008 peak. All the debt begins to add up. According to a report published by Nerd Wallet, the average American household has about $16,000 worth of debt.
With the Federal Reserve continuing to raise interest rates, Americans should pay off their debt now while things are good, because if they don’t, the debt will just begin to grow faster and faster.