Americans are increasingly charging purchases to credit cards — and letting their balances grow to dangerously high levels, according to a new report by CardHub.com.
The average household with credit card debt now carries a balance of $7,879, the highest amount since the Great Recession and just $500 less than the unsustainable tipping point defined by CardHub. Continued growth in balances at this rate could lead to rising default rates and a tightening of credit availability. By the end of 2015, total outstanding credit card debt came to more than $917 billion.
Part of the spending binge could signal improved confidence in the economy and better financial prospects, and consumers do typically pay down a portion of their credit card debt in the first quarter when they receive tax returns and annual bonuses. Still, if credit card debt continues to grow at the current rate, consumers would have to pay down their debts at a record rate in order to prevent rising defaults and tightened credit availability.
“While credit card debt levels are trending significantly upward, charge-off rates remain near historical lows and are, in fact, down on a year-over-year basis,” the report states. “Something clearly has to give, and it does not seem to be our spending habits.”
In the last quarter of 2015 alone, consumers racked up an additional $52.4 billion in debt, nearly the same amount added in all of 2014. For eight of the past 10 quarters, consumers have racked up more debt than they’ve paid off, indicating that consumers may be returning to poor credit habits that were common before the economic downturn.