Despite a first quarter in which U.S. consumers paid off more than $32.5 billion in existing credit card debt, we are still expected to finish the year with a $41.2 billion net increase to our debt load. This year is therefore shaping up to be a lot like 2011 and 2012, indicating that consumer overleveraging will continue to threaten the country’s economic recovery and may even result in a double-dip credit crunch should debt levels rise high enough to send default rates skyrocketing back to recession-era heights.
Below you can find a detailed breakdown of how credit card users have managed their spending and payment habits throughout the first two quarters of the year as well as 5 Tips for getting a handle on our debt problem. Data for the third and fourth quarters of the year will be added as it becomes available.
By the Numbers:
- Net Result in Debt Load: -$32,541,897,985 decrease
- Relative to Q1 2012: - 7%
- Relative to Q1 2011: 0%
- Relative to Q1 2010: - 17%
- Relative to Q1 2009: - 28%
- Outstanding Credit Card Debt: - $40,094,651,800
- Credit Card Charge-Offs: $7,552,753,815
- The $32.5 billion in existing credit card debt that U.S. consumers paid off during the first quarter of 2013 represents the smallest first quarter pay down in the past 4 years. We paid off 7% more of our credit card debt in Q1 2012, no more or less in Q1 2011, 17% more in Q1 2010, and 28% more in Q1 2009.
- Q1 2013 marked the first time in a year that consumers did not improve their credit management relative to the corresponding quarter the year before.
- The credit card default rate continues to drop and is now at its lowest point since the fourth quarter of 2006. Consumers unfortunately have not taken advantage of their improved ability to pay their bills on time to also pay down their debts.
- The average household currently has $6,591 in credit card debt.
By the Numbers:
- Net Result in Debt Load: + $17,015,594,709
- Relative to Q2 2012: - 3%
- Relative to Q2 2011: - 12%
- Relative to Q2 2010: + 75%
- Relative to Q2 2009: + 80%
- Outstanding Credit Card Debt: + $9,669,679,600
- Credit Card Charge-Offs: $7,345,915,109
- At roughly $17 billion, the Q2 2013 build-up was 3% smaller than that in Q2 2012 and 12% smaller than in Q2 2011. However, it still represents a significant increase relative to second quarters of 2009 and 2010. We are therefore still heading in the wrong direction, just at a slower pace.
- The average household now owes $6,658 to credit card lenders (up from $6,590 after Q1).
- U.S. consumers have charged-off on more than a quarter of a trillion dollars since the beginning of 2009.
- The charge-off rate, at 3.86%, is at the lowest point since 2006.
- After initially predicting a $47 billion increase in credit card debt for 2013, CardHub revised this number down to $41.2 billion in light of data from the second quarter of the year.
Net Result of Consumer Credit Card Debt Q1 2009 – Q2 2013
|Net Result in Debt Load||Relative to Same Period
|Relative to Same Period Two Years Ago|
Net Result in Debt Load – Green indicates that consumers decreased their debt relative to the previous quarter. Red indicates they increased their debt relative to the previous quarter.
Relative to Same Period – Green indicates that consumers either paid down more debt or accumulated less debt than they did in same quarter in 2012 and 2011. Red indicates that they either paid down less debt or accumulated more debt than they did in the same quarter in 2012 and 2011.
Consumer Credit Card Debt and Charge-off Data (in Billions):
|Outstanding Revolving Consumer Debt||Outstanding Credit Card Debt||Quarterly Credit Card Charge-Off Rate||Quarterly Credit Card Charge-Off in Dollars|
Quarterly Credit Card Charge-Off in Dollars
Tips for Managing Debt
- Make a Budget (and Stick to It): It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That is why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. And most importantly, once you develop your budget, make sure to stick to it or else you’ll have simply wasted your time.
- Build an Emergency Fund: With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.
- Try the Island Approach: The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.
- Use the Snowball Method to Strategically Pay Off Amounts Owed: In order to become debt free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.
- Evaluate Your Job Situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.
Please find previous studies here*:
- 2012 Credit Card Debt Study
- 2011 Credit Card Debt Study
- 2010 Credit Card Debt Study
- 2009 Credit Card Debt Study
* Some of the numbers may differ from study to study as a result of the Federal Reserve updating certain numbers for several months after first publishing them. For questions or more information regarding this study, please contact our media department.