Research and Statistics

Consumer credit card balances keep rising, Fed says


Consumer credit card balances moved higher in December, as more Americans pulled out their cards for the holidays. But experts say that a return to holiday shopping may not be the only reason why consumers saw their balances swell

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Consumer credit card balances climbed higher in December, as more Americans pulled out their cards for the holidays. But experts say holiday shopping may not be the only culprit contributing to swollen balances.


Americans’ credit card debt shot up by about $3 billion in December — the fourth straight monthly increase. Still, credit card debt is far below record highs set a few years ago. The chart below graphs Americans’ credit card debt totals from their peak of $972.2 billion in September 2008 through December 2011, when it rose to $801 billion.

The Federal Reserve’s latest G.19 consumer credit report showed a 4.1 percent rise in revolving debt as more consumers chose credit over cash. Revolving debt, which is made up almost entirely of credit card debt, rose by $3 billion in December to $801 billion.

Experts say that credit card debt often rises during the holidays. “Typically what you see, historically, is balances grow,” says Dennis Moroney, research director in the bank cards division with advisory services firm Tower Group. People “have been watching their pennies all year, and when it gets to the holidays, they decide to open up their wallets.”

However, experts say higher credit card balances could also reflect pent-up consumer demand for aging household items, such as dishwashers or computers. Or, more ominously, it could mean that consumers are relying on their credit cards to pay the bills.

December’s rise in credit card debt marks the fourth month in a row that card balances have grown. In November, revolving debt shot up more than 8 percent, surprising experts who predicted that holiday spending would spur a more modest increase in debt. It was the largest month-to-month percentage increase since 2008 and was accompanied by the biggest month-to-month growth in overall consumer debt since 2001. “There’s a lot of pent-up demand,” says Moroney. “Things wear out.”

The Fed’s monthly G.19 consumer credit report also looks at nonrevolving debt, which includes auto loans, student loans and loans for mobile homes, boats and trailers. Nonrevolving debt went up 12 percent to $1.7 trillion in December. This was the second month in a row that nonrevolving debt has grown by double digits, percentage-wise. Overall consumer credit — the combination of both revolving and nonrevolving debt — also increased by $19 billion. Total consumer credit jumped 9 percent in December, hitting $2.5 trillion.

Debt is a holiday tradition for many cardholders
Credit counselors say that overspending during the holidays is common for many cardholders. “They do the ostrich thing in December,” says Jennifer Wallis, vice president of the Consumer Credit Counseling Service of Oklahoma. “Once they come to the realization that they’re not going to have the cash during the holidays, they have to rely on credit cards … typically that leads to overspending.”

According to the National Retail Federation, December sales rose by more than 4 percent compared to the same period in 2010. However, the Department of Commerce reported that overall spending decreased slightly in December, canceling out an equally small gain in overall consumer spending in November.

That decrease in spending, paired with higher card balances, could mean consumers are putting their monthly bills on their credit cards instead of shopping.

“We are seeing some people who may not have relied [on credit] in the past for some of their household bills … rely on their credit cards to pay some of their bills,” says Wallis. That includes “clients who you wouldn’t have expected to be in financial trouble.”

Consumers may be doing better than they were during the depths of the recession, but many are still struggling. The economy strengthened considerably in the last quarter of 2011 after a mostly sluggish year, giving some a reason to hope, but it’s still nowhere near pre-recession levels.

The unemployment rate dropped to 8.3 percent by January, according to the Bureau of Labor Statistics’ most recent employment report, beating economists’ expectations. The Commerce Department also reported that more consumers got a raise in the last month of the year, with personal income rising slightly. That included a rise in disposable income — economist-speak for the extra money consumers have to spend on purchases they don’t need. Consumer confidence also spiked in December, according to the Conference Board.

However, a slightly fatter wallet and brighter mood may not have been enough for many consumers’ to cover their December bills. The cost of food rose in December, according to the Bureau of Labor Statistics, and many consumers paid higher medical bills and spent more on recreation as well. There was some offsetting relief, however. The Bureau of Labor Statistics reported that December gas prices were lower for the third straight month, giving a boost to consumers with long commutes. And a milder winter across much of the country meant that many consumers paid less to heat their houses.

Consumers may also have shopped less overall because the stress over their bigger card balances overwhelmed their desire to spend.

“There is a connection between consumption and debt stress,” says Lucia Dunn, a professor of economics at Ohio State University. “In the short term, the more people go into debt on credit cards, the greater their consumption is. But if you look at it over time, when you think you’re going to have to pay back that debt with interest … it causes [consumers] to pull back” on their spending.

More debt equals higher levels of stress for many consumers
For the first half of 2011, consumers steadily paid down their card balances. But in the last seven months of the year, balances began to fitfully rise. (July and August were the only months that saw declines.)

As consumers saw their balances grow, it’s likely their stress levels soared as well. “People do respond to these things,” says Dunn. “They get very worried.”

Dunn and her Ohio State colleagues poll consumers every month on how stressed they’re feeling about their debt and says respondents have reported that debt stress has had “an enormous impact” on their health, family life and even job performance. “It’s affecting everybody,” says Dunn. “It’s not just a problem for the Federal Reserve. It’s a problem for everybody.”

Dunn adds that accumulating debt to pay the bills is a problem people have been dealing with for years. “It’s hard to see how this cycle is going to come to end,” says Dunn. “This is such an ancient problem.”

See related: Americans want more credit, but banks are leery, Fed says, 8 things you must know about credit card debt

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