U.S. credit card balances may soon top $1 trillion

Are American consumers supremely confident or financially foolish? Credit card balances may top $1 trillion for the first time since 2008, which would be a net increase of about $80 billion for 2016. That’s a trend personal finance site WalletHub calls “very ominous.”

Indeed, consumers added a record $34.4 billion in credit card debt in 2016’s second quarter alone, the second-largest increase for that period since 1986. They added $71 billion to their credit card bills last year, the most since 2007. As a result, WalletHub says the average debt level per household will hit $8,500.

To make matters worse, consumers, paid down just $27.5 billion in credit card debt during the first quarter, the lowest first-quarter pay-down since 2008.

“As a result, it’s not a question of whether consumers are weakening financially, but rather how long this trend toward pre-recession habits will last and just how bad it will get,” WalletHub said in a report issued Monday.

WalletHub’s data jibes with trends seen by the National Foundation for Credit Counseling. Its 2016 Financial Literacy Survey found that one in three U.S. households carry credit card balances from month to month, with 14 percent indicating that they roll over $2,500 or more in debt. 

An August online poll by the nonprofit found that 26 percent of respondents couldn’t make ends meet without credit. Another 70 percent of respondents to a September survey that’s still in progress said they were most worried about credit card debt, said Bruce McClary, the organization’s vice president for communications.

The U.S. economy continues to grow as the contentious presidential election nears the end, albeit an anemic rate of 1.2 percent in the second quarter, far below the 2.6 percent Wall Street analysts had expected. Joblessness in August held steady at 4.9 percent as employers added a disappointing 151,000 new jobs.

The picture, however, isn’t entirely bleak.

In the second quarter of 2007, credit card charge-offs (for uncollectable balances) were 3.85 percent. In 2016’s second quarter, they were 3.13 percent, which is near historical lows. This indicates that credit card issuers are willing to take on indebted consumers.

“Right now issuers know that consumer confidence is very high,” said WalletHub analyst Jill Gonzales. “Consumers are hungry for new cards. [Issuers] are offering these very lucrative incentives and APR rates.”

Economist Scott Hoyt of Moody’s Analytics, however, isn’t ready to hit the panic button yet, noting that credit card debt remains below where it was in the years running up to the recession.

“We certainly see the same trend, but what you’re looking at is a growth rate that’s coming off a fairly small base because of the reduction in debt that took place during and after the recession,” he said.

Moreover, credit card debt outstanding relative to either nonauto and consumer spending remains low, according to Hoyt, who added that consumers these days have better capacity to handle the higher debt.

“We could do this for a couple of years,” he said, “before we started getting to levels that we would find concerning.”

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.