Consumer credit card debt statistics – an indicator of spending trends and household financial health – support the notion of a rapidly improving economy, which is further evidenced by the fact that an impressive 321,000 jobs were added in November while the unemployment rate hovers at 5.8%. The credit card charge-off rate, at 2.89%, is at the lowest point since 1985, you see, which indicates that consumers have the financial wherewithal to remain current on their obligations. That’s the good news.
The bad news is that while economic gains are making consumer spending habits sustainable for now, our attitudes toward debt have not improved since the Great Recession. Our credit card performance has deteriorated on a year-over-year basis for four straight quarters, punctuated by a $15.94 billion increase during Q3 2014. This represents a 35% increase over Q3 2013 and a 25% rise relative to Q3 2012. Furthermore, we now project that U.S. consumers will incur a total of more than $60 billion in new credit card debt by the end of 2014, which would be an increase of at least 55% over 2013.
As a result, consumers must strive to remember the corrosive impact of debt on household finances during the recession and work to get out from under its influence before the burden becomes unbearable again.
By the Numbers:
- Net Result in Debt Load: + $15,944,177,639
- Relative to Q3 2013: 35%
- Relative to Q3 2012: 25%
- Relative to Q3 2011: -1%
- Relative to Q3 2010: 184%
- Relative to Q3 2009: 33%
- Outstanding Credit Card Debt: $9,931,212,200
- Credit Card Charge-Offs: $6,012,965,439
- The credit card charge-off rate, at 2.89%, is lower than it has been since 1985! While this speaks volumes about the strength of the economy, indicating that more people have jobs and are able to stay current on their financial obligations, the prodigious amount of debt that we continue to rack up indicates that consumer attitudes toward money have not improved since the Great Recession.
- The $15.94 billion in credit card debt that U.S. consumers racked up during Q3 2014 represents the largest third quarter build up in the past five years, with the exception of 2011. The consumer debt picture has now worsened on a year-over-year basis for four straight quarters.
- The average household’s credit card balance increased by $68 during the third quarter of 2014, and is now $6,870. We expect this figure to reach $7,126 by the end of the year, bringing us roughly $1,200 away from a tipping point at which minimum payments will become unsustainable and delinquencies will skyrocket.
- CardHub now projects that U.S. consumers will end the year having racked up more than $60 billion in new credit card debt, which would be at least 55% more than in 2013.
By the Numbers:
- Net Result in Debt Load: + $28,149,510,572
- Relative to Q2 2013: 66%
- Relative to Q2 2012: 58%
- Relative to Q2 2011: 46%
- Relative to Q2 2010: 191%
- Relative to Q2 2009: 197%
- Outstanding Credit Card Debt: $21,056,779,800
- Credit Card Charge-Offs: $7,092,730,772
- Wow! For the first time in the past six years, consumers reversed almost the entirety of their standard first quarter paydown during the second quarter of the year. More specifically, the $28.5 billion in credit card debt that we incurred during the second quarter of the year wipes out more than 86% of the $32.5 billion we paid off with the aid of tax refunds and annual salary bonuses from January through March.
- This year’s second quarter increase was 46% higher than the next highest Q2 debt buildup (recorded in 2011) and nearly 200% higher than the increase witnessed in Q2 2009, when the country’s economy was just emerging from the Great Recession.
- CardHub projects that consumers will charge-off on $30.35 billion in credit card debt during 2014. If that projection holds true, consumers will have defaulted on nearly $300 billion ($298.5 billion) in credit card debt since 2009.
- The average household’s credit card balance increased by $174 during the second quarter of 2014, and is now $6,802.
- We expect the average household’s credit card debt to easily surpass the $7,000 mark during 2014, thereby reaching levels not witnessed since the end of 2010.
- Assuming the above projection holds true, by the end of 2014 U.S. consumers will be roughly $1,300 away from the credit card debt tipping point, where minimum payments become unsustainable and delinquencies skyrocket.
- At 3.45% in Q2 2014, the quarterly credit card default rate increased slightly from the first quarter of the year, indicating a small rebound from historical lows seen during the past three quarters. A continuance of this rebound in subsequent quarters could signal that credit card debt levels are increasingly unsustainable.
By the Numbers:
- Net Result in Debt Load: - $32,487,006,345
- Relative to Q1 2013: - 1%
- Relative to Q1 2012: - 5%
- Relative to Q1 2011: - 1%
- Relative to Q1 2010: - 16%
- Relative to Q1 2009: - 28%
- Outstanding Credit Card Debt: - $39,138,171,800
- Credit Card Charge-Offs: $6,651,165,455
- As has been the case for the previous five years in a row, consumers actually paid down their credit card debt in a big way during the first quarter of 2014. Unfortunately, this year’s first quarter pay down was slightly lower than in the previous three years and significantly lower than in 2009 and 2010, when consumer financial management was driven by the debt awareness of the Great Recession.
- CardHub projects that consumers will charge-off on $30.53 billion in credit card debt during 2014. If that projection holds true, consumers will have defaulted on nearly $300 billion ($298.5 billion) in credit card debt since 2009.
- The average household credit card balance declined by $352 during the first quarter of 2014, and is now $6,628.
- At 3.32%, the quarterly credit card default rate – down 0.3% from 2013 after a 12% decline last year – seems to be stabilizing near historical lows. A reversal in this trend could lead to a significant credit crunch.
Please note that figures listed in the Main Findings section of a particular quarter won’t always match those in the Data & Graphs section of this report, as the Federal Reserve regularly updates historical data with new research. Figures included in each Main Findings section reflect the information that was available at the time of that quarterly study being conducted, while the Data & Graphs section reflects the most recent data available.
Net Result of Consumer Credit Card Debt Q1 2009 – Q3 2014
|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 the previous two years. Red indicates that they either paid down less debt or accumulated more debt than they did in the same quarter in the previous two years.
Annual Net Result of Consumer Credit Card Debt 2009 – 2014 (projected):
Consumer Credit Card Debt and Charge-off Data (in Billions):
|Outstanding Credit Card Debt||Quarterly Credit Card Charge-Off Rate||Quarterly Credit Card Charge-Off in Dollars|
Quarterly Credit Card Charge-Off in Dollars
- 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*:
- 2013 Credit Card Debt Study
- 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.