Six years after the bull market began, Americans' appetite for credit card debt and banks' willingness to lend is growing again. According to Equifax, the total credit card debt outstanding jumped to $642.4 billion in December, up from $606.75 billion a year ago. That means that the average Americans' credit card balance increased by 5.9% in 2014.
Following the Great Recession, Americans reeled in their spending and lopped billions of dollars off their credit card balances. Sometimes this newfound thrift was by choice, other times it was forced by lenders. Either way, American balance sheets became far friendlier over the past six years.
That's been good news for Americans, because it means a smaller chunk of monthly income is being used to cover credit card interest, allowing more financial flexibility to save and invest for important milestones such as retirement.
However, Americans' improving financials could be a short-term phenomenon if current credit card trends continue. As of the fourth quarter, Equifax reports that there are 361.4 million credit card loans outstanding. That's up from a low of 311.8 million such loans outstanding in the third quarter of 2010.
Equifax also notes that the number of quarterly new credit card accounts issued by banks has more than doubled from their lows. In the third quarter of 2009 the industry approved just 8 million new accounts, but last quarter lenders issued 16 million new credit card accounts.
Credit cards' resurgence wouldn't be as worrisome if those new accounts were only being issued to people most likely to repay credit card debt, but that's not necessarily the case. Increasingly, these new accounts are being approved for high risk borrowers.
In the second quarter of 2010, just 13.5% of credit card loans were originated for people with credit scores below 620. As of the fourth quarter, that percentage jumped to 21.7% -- its highest levels since 2008.
How do you stack up?
The percentage jump in credit card debt during the past year has varied from region to region. In areas where economic growth has come back quickest, so has credit card use. Alternately, areas in the nation that have seen growth bounce back more slowly have similarly seen credit card use increase less.
Regardless, credit card balances have climbed in every region of the country in the past year. In fact, the smallest year-over-year growth in credit card debt was 4.29%. That means that debt grew much more quickly than the 4% uptick in income last year. It also means that debt has climbed where you live, so let's see how you compare.
According to Equifax data that compares last December to one year ago, the Houston area recorded the biggest increase in credit card debt with a jaw-dropping 9.37% jump. It's likely that a good chunk of that increase came thanks to newfound wealth tied to the shale oil boom, so it will be important to see if delinquency rates pick up following the recent slide in crude oil prices. Other areas that saw debt grow notably include Orlando and Miami. The areas with the smallest increase in credit card debt include Seattle and St. Louis.
The impact that rising credit card debt could have on our economy could be significant. After all, soaring debt was a significant factor behind the Great Recession. We're not at levels that suggest a similar economic decline is coming, but these trends should be watched carefully.
Regardless, if your credit card debt is growing more slowly than the average American's, congratulations. That shows that you understand that while there may be a time and a place for credit card debt, those times and places should be considered judiciously. If they aren't, a surge in credit card debt could end up derailing your efforts to save for important life events, including retirement.
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