The U.S. credit card debt is set to hit the $1 trillion mark this year. The last time Americans owed $1 trillion in credit card debt was during the Christmas of 2008, in the middle of the Great Recession. That level of debt was maintained for just one year, from December 2007 to December 2008. Never before had Americans had so much outstanding credit card debt. The Great Recession scared everyone. Banks reined in lines of credit and consumers reduced their spending.
After eight years of playing hard to get, it seems like banks are feeling better about lending and consumers are not complaining. What does this mean for the U.S. economy? Is it a sign of financial recovery or are we witnessing the writing on the wall for another recession?
The growth in credit card debt is a good sign for the U.S. economy
At least that was the view of economist Christopher Low in a CNBC interview. “It is a sign that consumers are feeling a little bit better. They’re more comfortable spending money.” According to Low, chief economist at FTN Financial, an increase in credit card debt is a symptom of financial growth and optimism. Low also noted that the growth could be a side of effect of banks restricting access to home equity loans. “It’s really hard to get a home equity line of credit. People are using credit cards to pick up some of that slack.”
James Chessen, chief economist at the American Bankers Association, agrees. In an interview for Marketplace, Chessen said: “Consumers are feeling better about their financial situation and are looking to buy that refrigerator and the couch that they may have put off before.”
Maybe. But Credit Card Debt Isn’t A Good Sign For Your Financial Health
As consumers, we have little control over the macroeconomic effects of high consumer debt. What we can do is ask ourselves whether our debt is healthy or toxic for our financial future. That is a much easier question to answer than whether credit card debt is good for the economy at large. Some types of debt, such as mortgages and business loans, are acceptable: even beneficial. Credit card debt is not one of them. Economists may agree a growth in credit card debt is, for now, a good sign, but it’s certainly not good for those stuck with the bill.
If you carry any kind of credit card debt, make it a priority to repay it as soon as possible. Depending on the interest you are paying, it may make sense to consolidate your credit card debt with a personal loan. For some borrowers, switching to a low-interest credit card is the best option. Consider credit cards that offer 0% balance for an introductory period. Some cards, such as Chase Slate and Citi Simplicity have 0% APR introductory periods of up to 21 months. You will be surprised how much of a dent you can put in your credit card debt if you focus on repaying it during a year when you don’t have to worry about the interest on the principal.
Credit Card Debt Relief
If you are drowning in credit card debt and can barely make minimum payments, rest assured that you’re not alone. Millions of Americans are struggling with credit card payments, mortgages, personal loans and other types of debt. Credit card companies and other lenders know full well that many consumers simply cannot afford to continue making minimum payments and are willing to negotiate a settlement.
Certified debt arbitrators can cut your debt balances by up to 70%. Not all cases are the same and a lot depends on your personal circumstances, but some arbitrators can negotiate even larger discounts.
Debt relief programs are not for everyone, but it only takes a few minutes to determine whether you qualify. Negotiating a debt settlement can affect your credit and you should discuss the tax consequences with a tax attorney. The best part is that a free consultation with a debt settlement mediator will not affect your credit score in the slightest. Invest five minutes of your time in a debt-free future and see what debt relief programs you qualify for.
The smart way to use credit cards is to:
- Use them to pay as many of your purchases and expenses as you can
- Milk card issuers for all the miles, points, and cash back rewards you can get
- Pay off the balance every month before you are charged interest
For more information on the best credit cards available check these articles:
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.