Consumers went on a spending spree in the second quarter of this year, racking up $28.2 billion in credit card debt. That erased 86 percent of the amount they had paid off over the first three months of 2014.
This run up in debt was the largest in six years, according to a study by CardHub, which now expects total credit card debt this year to hit $54.8 billion, a 41 percent increase from 2013. The second quarter numbers are a 66 percent increase over the same period last year and a 58 percent increase over the second quarter of 2012. This year marks a dramatic reversal of behavior from both 2012 and 2013, when consumers continued to pay down their debt in the second quarter.
Consumers typically make up for all their holiday purchases by paying down their debt in the first quarter of a year but they did less of that this year, according to the report.
"As has been the case for the previous five years in a row, consumers actually paid down their credit card debt in a big way during the first quarter of 2014," the report says. "Unfortunately, this year's first quarter pay down was slightly lower than in the previous three years and significantly lower than in 2009 and 2010, when consumer financial management was driven by the debt awareness of the Great Recession."
The average household credit card balance rose $174 to $6,802 in the second quarter. By the end of the year, CardHub expects this number to be well over $7,000, the highest it's been since 2010. The report notes, "Assuming the above projection holds true, by the end of 2014 U.S. consumers will be roughly $1,300 away from the credit card debt tipping point, where minimum payments become unsustainable and delinquencies skyrocket."
CardHub also expects consumers to default on $30.53 billion in credit card debt during 2014. If that happens, consumers will have defaulted on nearly $300 billion in credit card debt since 2009.
There is no indication consumers trimmed their spending over the summer, either. A report earlier this week from the Federal Reserve found credit card balances increased in July, the fifth consecutive month of rising card debt this year. Revolving debt grew at a 7.4 percent annual pace in July, up from a revised 2.5 percent pace in June, according to the Fed. Total consumer debt -- that includes car loans, student loans and revolving debt, but excludes mortgages -- rose 9.7 percent in July to approximately $3.24 trillion, $880.5 billion of which was revolving debt. That's the largest increase since July 2011.
Oddly, despite this consumer spending actually fell in July. According to the Commerce Department spending fell 0.1 percent in July after a strong gain of 0.4 percent in June. At the same time personal income rose 0.2 percent the weakest growth rate since December.
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