Main findings from WalletHub’s 2016 Credit Card Debt Study:
* WalletHub projects that total outstanding credit card balances will surpass the $1 trillion mark for the first time ever by the end of 2016.
* U.S. consumers accumulated $34.4 billion in credit card debt during the second quarter of 2016 – most since at least 1986 and 79.60 percent above the post-Great Recession average.
* In second quarter alone, consumers have racked up nearly half (48 percent) of the total debt accumulated in 2015 and almost matched the $36 billion increase in 2012.
* The average indebted household’s balance rose to $7,817 in the second quarter – just $611 below the tipping point WalletHub identified as being unsustainable.
Consumers in Ohio and the rest of the nation are on pace to rack up a record $1 trillion in credit card debt by the end of the year, according to a recent report, raising concerns that many Americans have forgotten the hard lessons of the 2008 financial crisis that forced many consumers into bankruptcy.
Once again, consumers are using their credit cards to a greater degree and spending aggressively, charging up $34.4 billion in credit card debt in the second quarter of 2016, according to a new report by WalletHub, a consumer finance site.
That was the biggest second-quarter spike in credit card debt since WalletHub began collecting the data, and nearly 80 percent higher than the quarterly average since the Great Recession, according to the firm. The most recent figures continue the trend from last year when consumers accumulated $71 billion in credit card debt — the most since the recession began in 2007.
“It is 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,” the study’s authors wrote.
Curtis Arnold, founder and editor-in-chief of CardRatings.com, said the aggressive build-up in debt is “alarming,” in part, because it’s occurring in a rising interest rate environment.
In December last year, the Federal Reserve raised the benchmark interest rate by 25 basis points for the first time since 2006, and the Fed is set to meet Tuesday on whether to raise rates even higher after years of keeping them artificially low to stimulate growth in the weak economy. The Fed is expected to again raise rates by a quarter percentage point or do nothing.
But no matter what they do at their next meeting, the Fed will likely raise rates more rapidly in the months to come, creating a snowball effect for credit card borrowers, many of whom will see their monthly payments grow as interest rates climb, Arnold said.
“Higher debt usually leads to higher default rates. And for a lot of consumers, it doesn’t take a much to send them over the edge,” he said.
So far, credit card delinquencies and charge-off rates have remained stable. But the average household debt load rose $7,817 in the second quarter — just $611 below the tipping point that WalletHub identified as being unsustainable.
Tim Brandon, a spokesman for Graceworks Lutheran Services Consumer Credit Counseling Service in Dayton, said he believes many area residents are sitting on the precipice of credit card disaster, although he has yet to see a surge of customers seeking counseling to resolve their financial problems.
“We do not see our numbers going up, in terms of clients. But based on what we know, we feel they should be,” Brandon said. “With more credit card debt out there, we would think more people would be contacting us for help. I think a lot of people just don’t want to admit they’re in trouble, and, therefore, don’t want to ask for help.”
Linda Davis, a 39-year-old home health aide in Dayton, said despite being perilously close to maxing out her credit cards, she doesn’t think credit counseling would help. Davis said she simply needs to earn more money to pay down the debt she accumulated during a long stretch of unemployment when she relied on her credit cards to put gas in her car and food on the table.
“It’s not like I’m going out and buying shoes and clothes, but I still need my credit cards to live,” she said. “I have three credit cards, and it’s s a struggle for me just to make the minimum payments every month. It’s probably going to be that way until I find a better job.”
Davis’ credit card spending is expected to contribute to a net increase of roughly $80 billion in U.S. credit card debt by the end of the year, which would bring outstanding balances above the $1 trillion mark for the first time and push the average amount owed by indebted households to $8,500, WalletHub projects.
When credit card debt is combined with auto loans, mortgage loans and other debt, the average Americans total household indebtedness is on pace to reach recessionary levels in the next 12 to 18 months, according to the Fed.
In the second quarter, aggregate household debt was $12.29 trillion — a $35 billion increase from the first quarter of 2016, and just 3.1 percent below the peak of $12.68 trillion in the third quarter of 2008, the Fed recently reported.
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