Credit Card debt in America, the sequel. (Will it be worse than the original?)

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We’ve all seen a movie and then looked forward to the sequel. Usually, the second film isn’t as good as the first, and we leave the theater somewhat disappointed. But, sometimes, part II is even better than the original, and we walk out thoroughly entertained.

So, when we talk about the horror film of credit card debt in the United States, American consumers are now in the midst of Part II, the sequel.

But will this sequel be better or worse than the first storyline – our credit card and debt problems during the financial crisis ten years ago? Let’s find out!

Grab your popcorn (and kindly turn off your cell phones) because this show is about to start.

Here’s a review of the sequel, our current U.S. debt levels:

• Right now, Americans have $931 billion in unpaid credit card balances.

• While those numbers are definitely not suitable for all audiences, it’s even more shocking to realize that our credit card debt is up 8% since only a year ago.

• That includes all debt from the roughly 200 million Americans who have and use credit cards.

• In fact, the average consumer keeps 2.3 credit cards.

• But plenty of people are still managing their debt correctly. In fact, about 78 million cardholders use their credit cards BUT pay their balances off in full every month.

• Do the math, and that means about 122 million Americans are holding credit card balances month-to-month.

Who is paying off their credit card debt?

• 45% of households are paying off their credit card balances in full every month
• 28% of households don’t pay them off but carry a balance month-to-month
• 26% of households pay off their credit cards sometimes, but also carry a balance at times.

Now, let’s look at just the stats for people who don’t pay off their credit cards, but carry balances month-to-month:

The most concerning debt demographic in the U.S. is now the number of people who use credit cards but don’t pay them off.

Among those balance holders, the average monthly credit card debt is $8,683.

That debt level has increased an alarming 8.6% – almost double digits – since one year ago, a rise of $650 per household in debt that’s not being paid.

And 14% of all consumers have credit card balances above $10,000 at any given time!

Looking closer at those unpaid balances:

• In total, $542 billion in credit card debt balances is not being paid in full every month.
• If we averaged that out over all cardholders, we’d find $4,435 in unpaid credit card debt per person and $8,683 per household.
• But, here’s the kicker: the average Annual Percentage Rate (APR) for that $542 billion in unpaid credit card debt is an unsightly 14.99%.
• Ouch! Considering our average balances, that means we’d owe about $1,183 JUST IN MINIMUM PAYMENTS every year! For those 14% of consumers that have $10,000 or more in credit cards, that means upwards of $1,500 every year in interest charges!
• That doesn’t even account for paying down or off those balances – just monthly minimums!

However, there’s reason to believe that this sequel won’t be quite like the first one:

Why this credit card sequel is different than the Great Recession:

Yes, our credit card debt is growing -and being mismanaged – at rates that indicate serious concern.

In fact, our current unsecured debt levels are actually 22.8% lower than in October 2008, during the height of the debt bubble and financial collapse. That month, the average household that didn’t pay off their credit cards every month had $11,248 in debt.

Another reason for solace these days is that our household incomes have risen since then, especially compared to the amount of debt we hold. In fact, the average household these days has a credit card debt to income ratio of 14.7%. But back in the dark days of 2008, that ratio was 20.1% – alarming!

Back in 2008, U.S. consumers had $589 billion in credit card debt BUT there were 20 million fewer Americans that had credit card debt, so those who held debt had far higher balances ten years ago.

Another indicator we can look at is Delinquency Rates. The most telling is 90-day delinquencies when people really are on that slippery slope towards bankruptcy or charge-off, called Serious Delinquency.

Back in Q2 2010, the serious delinquency rate for credit cards hit a whopping 13.74%, an all-time high by all estimates. Now, the same metric is 7.47% – concerning, but only about half as much as during the financial crisis.

Bad actors in this sequel.

Much of the crisis with our level of credit card debt may not be coming from consumers at all – but banks.

Since 2010, banks have slowly but surely inched up credit card interest rates, between 13% and 14%. However, these days, the average credit card rate is almost 15% – and much higher for certain cards and consumers.

Last year, banks earned well more than $100 billion just in credit card interest and fees – which is 15% more than they earned in 2010 despite the debt crisis at that time

Looking forward to part III of this series?

Yes, our credit card debt is rising to $1 trillion, and now a critical problem for those who don’t pay their balances every night.

As we covered, that debt level is tempered by the fact that our delinquency rates are low and our incomes have risen, too.But, don’t forget that we’re talking about credit cards – not all unsecured debt.

In fact, American consumers also have $1.22 trillion in auto loans and $1.38 trillion in student loans, in addition to all of our credit card debt.

Now THAT’S a storyline that will have us rushing for the exits!

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