Americans' credit card debt hits $1 trillion

Card balances on track to shatter all-time high this year

Brady Porche
Managing Editor
Personal finance journalist with an eye for industry news

Dollar bills

Hi, America. Here's your credit card bill. You owe $1 trillion.

U.S. credit card balances have now hit $1 trillion, according to a projection that uses consumer credit data from the Federal Reserve. That's the highest level of card debt since January 2009, at the worst point of the Great Recession.

At first glance, the debt level seems daunting. A debt of $1 trillion is greater than the GDPs of all but 15 countries, according to data from the International Monetary Fund. But with steady job growth and relatively low debt burdens, American consumers are in a stronger position to manage their credit than they were during the recession.

“Consumers currently have the capability to manage their debts and their overall financial obligations,” said Scott Hoyt, senior director at Moody’s Analytics. “This is not to say there aren’t individuals in trouble – I’m sure there are – but the aggregate level of debt payments is low relative to income, which suggests it’s manageable.”

2017: A banner year for credit card debt
Credit card balances stood at $992.4 billion in November, according to the Fed’s consumer credit report released Jan. 9. Revolving debt has grown by $5 billion per month on average since November 2015. A straight-line projection at $5 billion per month shows card balances clearing the $1 trillion mark sometime in January.

We won’t know the exact moment that our national credit card bill crosses the $1 trillion mark for at least another month or two, because of a lag in the data. The Fed’s consumer credit reports for December and January will be released in February and March. If we splurged as we did in November, when credit card debt surged by $11 billion, then we already crossed the $1 trillion threshold last year. A slower buildup in spending might push the trillion-dollar milestone back to February or later.

U.S. revolving debt reached $1 trillion for the first time in December 2007 and stayed above that mark for 13 subsequent months. Card balances began to decline in October 2008 and didn’t hit bottom until April 2011, when they fell to $832 billion. Much of the decline in consumer debt was attributed to billions of dollars in write-offs and more cautious lending by banks. However, in a 2013 report, Federal Reserve Bank of New York economists said consumers also reined in new borrowing and paid off substantial amounts of their credit card and auto loan balances.

Barring any sudden shock to the U.S. economy, cardholders are poised to break the all-time revolving debt record of $1.02 trillion, set in April 2008, in May. Chief economists at the nation’s largest banks expect steady economic growth through 2018, the American Bankers Association (ABA) said earlier this month.

Americans owe $1 trillion on their credit cards

No sign of a credit bubble burst
Despite the growth in debt, consumers’ recent credit behavior suggests the likelihood of a card debt crisis is low. Card delinquency rates have remained at 15-year lows since 2012, though they have ticked up in recent months, according to the ABA. Charge-off rates, which spiked dramatically during the recession, were at 22-year lows in the third quarter of 2016. Meanwhile, the Fed’s household debt service and financial obligations ratios have held steady at historic lows for the past four years.

Hoyt of Moody’s said more delinquencies are inevitable amid rapid growth in card balances, but an epidemic of defaults is unlikely.

“There’s no reason to think [delinquencies] are going to return to ridiculous levels,” he said. “If anything, delinquency levels that we’re seeing now are, by historic standards, ridiculously low.”

Delinquency levels that we're seeing now are, by historic standards, ridiculously low.

— Scott Hoyt
Senior director, Moody's Analytics

Credit card balances will keep climbing in the near term, perhaps tempered by rising interest rates, a new tightening in lending standards and higher debt payments made by consumers.

“The level of debt will likely continue to grow,” Hoyt said. “However, at some point growth will slow such that the growth of payments at least approximately matches income growth.”

Warning signs of a potential crisis might include a rise in overdue payments above historically normal levels and a surge in borrowing relative to income and spending. A sudden upturn in the unemployment rate – which stood at 4.7 percent in December – and slower income growth could also portend a credit bubble burst. Additionally, higher interest rates could hinder consumers’ ability to make their payments on time. The Fed hiked rates by 0.25 percent in December and more increases are expected this year. Many issuers raised variable APRs on their cards in response to the last rate hike, and the national average APR on new card offers rose to a record high this month.

“Increasing credit card balances against the backdrop of rising unemployment and flattening personal income would be a concern,” said Perc Pineda, senior economist at the Credit Union National Association. “I don’t think our economy is at or approaching a threshold of consumer over-borrowing.”

See related: Poll: Americans more optimistic about getting out of debt

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Updated: 03-24-2019