Consumer Trends

Living With Debt

We’ve just seen the biggest Q2 credit card debt Increase since the great recession

With the global economy in turmoil and the Fed’s stance on interest rates under the spotlight, consumer credit card debt trends offer yet another reason for concern.

Undeterred by the potential for rising costs, we racked up $32.1 billion in new balances during Q2 2015, according to CardHub’s latest Credit Card Debt Study.

Not only is this the largest second-quarter binge since the study began in 2009, but it also erased nearly our entire Q1 paydown and put us on pace to end the year with a more than $60 billion net increase in credit card debt.

 

Q2 2015 Main Findings- By the Numbers:

Change in Outstanding Credit Card Debt: $25,586,927,800
Credit Card Charge-Offs: $6,489,489,706
Net Result in Debt Load: $32,076,417,506

  • Relative to Q1 2014: 14%
  • Relative to Q1 2013: 86%
  • Relative to Q1 2012: 81%
  • Relative to Q1 2011: 66%
  • Relative to Q1 2010: 234%
  • Relative to Q1 2009: 239%

With 7 of the past 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits.
We expect outstanding credit card debt to cross $900 billion by the end of the year, bringing the average indebted household’s balance to $7,813 — the highest amount since the Great Recession and $615 below the tipping point CardHub identified as being unsustainable.
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. Something clearly has to give, and it does not seem to be our spending habits.
Consumers tend to incur less credit card debt in the third quarter of the year than in the second, before spending spikes during Q4. Just how bad this year will be for our wallets may thus depend on how flush we’re feeling during the busy holiday shopping season.

Other Main Findings:

  • With 7 of the past 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits.
  • CardHub expects outstanding credit card debt to cross $900 billion by the end of the year, bringing the average indebted household’s balance to $7,813 — the highest amount since the Great Recession and $615 below the tipping point CardHub identified as being unsustainable.
  • 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. Something clearly has to give, and it does not seem to be our spending habits.

Undeterred by the potential for rising costs, we racked up $32.1 billion in new balances during Q2 201

 

Tips for Managing Debt

  • Make a Budget (and Stick to It)
    It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That is why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. And most importantly, once you develop your budget, make sure to stick to it or else you’ll have simply wasted your time.
  • Build an Emergency Fund
    With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.
  • Try the Island Approach
    The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.
  • Use the Snowball Method to Strategically Pay Off Amounts Owed
    In order to become debt free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.
  • Evaluate Your Job Situation
    In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.

For the full Q2 2015 Credit Card Debt Report, including 5 Tips For Dealing With Debt, please visit: www.cardhub.com/edu/credit-card-debt-study/