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Consumer Credit Card Debt Near ‘Unsustainable’ Levels: CardHub

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Consumers paid off almost $35 billion of credit card debt in the first quarter of 2015, then racked up another $53.3 billion over the next two quarters, according to CardHub.

If they keep it up, CardHub estimates consumers will end 2015 with a net increase of $68.5 billion in credit card debt, “putting us perilously close to a tipping point at which balances become unsustainable and delinquency rates skyrocket,” according to the report.

Total credit card debt is expected to pass $900 billion by the end of the year. That will mean the average household’s debt balance will be over $8,000 and just $400 below the level CardHub says is unsustainable.

CardHub has been conducting its credit card survey since 200,9 when consumers removed $875 million from their debt balance. By 2010, the net result in debt load increased 377%, followed by a 1,820% increase in 2011. After a 22% drop in 2012, the debt load has been climbing ever since.

The almost $11 billion decline in new credit card debt between the second and third quarters is not a sign of consumers’ improving credit responsibility. Instead, it’s part of a “historical trend where a first-quarter paydown is followed by a spike in debt levels during the second quarter, a more-modest increase during the third quarter, and a relatively massive buildup to end the year.”

CardHub noted that charge-offs are down on a year-over-year basis and are close to historical lows. Creditors removed just $6 billion from debtholders’ balances in the third quarter.

Furthermore, consumers have reverted to pre-downturn bad habits in eight of the last 10 quarters, CardHub found.

As a matter of fact, the new Q3 debt — $21.3 billion — is the largest third-quarter increase since the financial crisis, CardHub found, and 71% higher than the post-recession average.

“Something clearly has to give, and it does not seem to be our spending habits,” CardHub wrote.

— Read How Financially Smart Are Americans? on ThinkAdvisor.


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