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U.S. credit card debt jumps 18.5% and hits a record $930.6B
- mikeyouse 4y agoYes, yes, the sky is falling. The full picture gives hint to how banal this data is: Consumer revolving credit: https://fred.stlouisfed.org/series/CCLACBW027SBOG https://fred.stlouisfed.org/series/CCLACBW027SBOG Consumer delinquencies: https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS Both are ~on trend for post-GFC US, total debt isn't inflation adjusted either so of course the number is getting bigger as unemployment is low and inflation has been high. A more useful metric is probably household debt service ratios like: https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP
- joxel 4y agoDoes the TDSP data include the student loan pause?
- gorbachev 4y agoConsumer delinquencies link should be this one? https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS Looks like a fairly low rate, but growing quite fast.
- mikeyouse 4y agoYep - thanks. Updated my post. So much of the current crop of indicators is fairly obviously just mean-reversion. Of course there's the risk of a hard landing, but when delinquency rates are lowered via the stimulus funds it doesn't seem very interesting that they've increased once the stimulus money ran out.
- xnx 4y agoRelevant, contextualizing, comments is a textbook example of why the web sorely needs a broadly used third-party comment system. How many readers of that article on cnbc.com will never get this perspective?
- kube-system 4y agoThe "broadly used" part would ruin the entire concept.
- xnx 4y agoThat's definitely a challenge, but I don't think the task of comment ranking is hopeless if using sufficient author reputation signals. That's especially true if ranking is personalized.
- commandlinefan 4y agoIt also doesn't (seem to) take into account how prevalent credit cards as a method of payment have become - for whatever reason, most of the companies I owe money to would rather I let them debit my credit card each month (and pay CC transaction fees) than send me a bill and let me pay them with online bill pay. My credit card bill is astronomical every month, but that's because all my bills are on it, and I just pay the balance every month.
- manigandham 4y agoOnline bill pay (initiated on your end) is usually just paper checks and occasionally ACH transfers, both of which take time and are annoying to deal with, so of course they don’t like it.
- mrguyorama 4y agoThey prefer auto-pay type setups because refunds are easier to prevent than squeezing a payment out of a non-payer.
- kube-system 4y agoWhat happened there in 2010?
- muzz 4y agoAn accounting change: https://economics.stackexchange.com/questions/15387/why-did-the-stock-of-consumer-loans-held-by-commercial-banks-jump-in-march-2010 https://economics.stackexchange.com/questions/15387/why-did-...
- zenmacro 4y ago> Yes, yes, the sky is falling I agree that we shouldn't buy into the media's perpetual gloom & doom machine but I also caution against the knee-jerk contrarian "everything is fine" impulse. The percentage rate of change is often the best signal in these kinds of indicators. We're around 20% YoY. The last two years (2004 & 2008) we hit that kind of level weren't strong economies. https://fred.stlouisfed.org/graph/fredgraph.png?g=ZAtQ https://fred.stlouisfed.org/graph/fredgraph.png?g=ZAtQ The Dec '22 FOMC Minutes also hinted that the FOMC is also watching credit card levels. Interest rates have exploded higher yet consumers are increasing their credit card debt.
- m3kw9 4y agoDoesn’t seem much given inflation and price increases. Everything is 50% more expensive right now than a 2-3 years back
- elil17 4y agoInflation is 50% vs. 2006 Only 15% vs. 2020 This is an 18.5% jump in debt in a period where prices rose about 6.5%. It does not make sense to say that this is explained by inflation.
- yamtaddle 4y agoLots of things have definitely gone up way more than 15% since 2020. My grocery bills are way more than 15% higher, for one. I'd say the 50% estimate's closer, there, despite our downgrading a lot of things we're buying, and once you factor in the awful shrinkflation in many products over that span. Housing (thank god we got locked in well before that) and healthcare costs (for us) are up way more than 15% since 2020. But sure, mediocre TVs are still cheap as hell.
- WheatMillington 4y agoYour experience is not supported by the data.
- yamtaddle 4y agoWell the data can refund my account, then. And those of everyone I know.
- coding123 4y agoThe data is not shopping at my local Raleys.
- mrguyorama 4y agoYour local Raleys jacking up prices locally is not inflation. I've seen people in this forum complain that inflation is bad because their personal choice of cereal doubled in price, but that is not the general case, and that is not inflation.
- kneebonian 4y agoThis would be expected in a recession. First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much worse interest rates, and soon that's gone. You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again, only this time we've already played the QE card. So it will be interesting to see. My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound?
- bobthepanda 4y agoThe issue is generally that people are bad at timing the bottom, and often times it actually pays off to invest the same amount in dollars into the stock market, since you will buy as its going low and have more room for going back up.
- kube-system 4y agoYep, I've bought the bottom a few times since March 2020 and I haven't found it yet.
- ejvincent 4y ago> My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound? You are trying to time the market. That is notoriously difficult. You are almost for sure going to miss the ideal timing. That's why there's the saying, "time in the market beats timing the market". There's many write-ups on this topic, but https://www.schwab.com/learn/story/does-market-timing-work https://www.schwab.com/learn/story/does-market-timing-work shows a decent breakdown of different strategies and how they would have worked out. > You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again A few things here: 1. We have less building now than during the lead up to 08: https://tradingeconomics.com/united-states/housing-starts https://tradingeconomics.com/united-states/housing-starts 2. Subprime mortgages are dramatically lower in volume 3. ARM loans are dramatically lower in volume Just because there might be an increase in defaults doesn't mean we're going to see anything like 08.
- willio58 4y agoCredit Cards are so frightening. I remember having to hide from my Mom that I had gotten one when I was 18, because she was so scared I would ruin my life with it. Of course it's done the opposite.. I've built credit and saved lots of money in doing so, but I do get her fear. These cards are accepted by society because they benefit those who know how to use them, but it's hard to look past the fact that so many people, if not most, are financially illiterate (because of failings of education due to lack of funding) and so many people screw themselves financially for decades if not their whole lives because of them. Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR. Of course I wouldn't get my 3% cash back for being a responsible user of my card, but we also wouldn't be screwing people so hard on the other end. We can say "but they signed the terms!" all we want, but we all know that people agree to things that are a detriment to them and the world for short-term gain. Regulation should be there to prevent that as much as possible.
- brianwawok 4y agoEveryone has to avoid getting screwed until a pile of CC debt. While refusing to own one isn't my personal plan, I appreciate people like your mother. She sees the downside as >>>> the upside, and just swears off the entire thing. Day to day, the only use of my credit card is just buying stuff online - so when my # gets stolen, my money isn't taken out of my bank account (like it would be if I used a debit).
- dahfizz 4y agoThis is the way. A Credit Card is just a Debit Card, but with rewards and better fraud protection.
- WheatMillington 4y ago5% on unsecured debt? Absolutely no one would offer credit cards, period. They wouldn't exist. I'm not saying a lower regulated rate couldn't work, but it would be to be considerably higher than 5%.
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- minhazm 4y agoI'm curious how much of this is debt that is being carried for more than a month. I like many others use a credit card for the cash back / points and other benefits they provide and just pay off the balance every month.
- time_to_smile 4y agoIf it where the case that everyone was like you in their credit card use it would have to imply one month consumer spending also went up dramatically. This is something, at least according to earnings reports coming it, I don't believe we're seeing.
- calr 4y agoOr perhaps credit card popularity is increasing; spending that was previously done via cash and debit cards is shifting to credit cards. That would leave earnings constant.
- babypuncher 4y agoMy credit card debt looks substantially higher today than it did two years ago, but that's because I shifted from charging everything to my debit card to using a credit card that earns me rewards. My average CC balance is about $1500-$2000, but it never stays there long enough to accrue interest because I just pay it off at the end of every month.
- dudul 4y agoDoes it even count as debt or balance if you just pay the full statement every time? It never generated interest payments so I wouldn't think so.
- wincy 4y agoI just recently started attacking my credit card debt, paying off cards. As I’ve paid off each balance two of the cards have immediately raised my limit to double or even 10x(!) my previous limit. Which surprised me, the credit card companies think I’m making substantially less than I actually am. I don’t really understand how it all works, as I feel like my total credit card debt is higher than I’d like, but my credit score got way better since now my balance looks way lower as a percentage of my total credit.
- cyberlurker 4y agoWhy do you have credit card debt at all? That’s why they think you are making less.
- mise_en_place 4y agoCash is worth more to me than what the credit card company thinks about me. What a bizarre take. Carrying balances is a positive thing if you pay on time every month.
- lizzardbraind 4y agoDoes interest on US credit card debt typically float with national interest rates, or is it fixed when you apply for the card? If it's the former, this seems like it could be an insidious trap for people who grew up in a world of 0% interest rates.
- sakopov 4y agoI think plummeting savings (down to $600B from $4T as of October of last year) is probably the best indicator of a major incoming recession. The layoffs haven't really significantly impacted anybody outside of the tech sector and I think that's in part because consumers are still spending. However, they are spending their dwindling savings, not extra cash, and getting into credit card debt. This will eventually come to an end and then it will really hit the fan. I also don't see FED stop raising interest rates any time soon which puts even more pressure on economy. It's hard to see how any of this will result in a "soft landing."
- coding123 4y agoI stayed with the same job since 2017 - too afraid to change jobs after the pandemic hit. No raises at all, and we're at a company that was able to profit from COVID-19. My wife and I have been taking huge credit card losses lately by staying with the company. I'm now interviewing and getting out. The inflation is killing everything. Definitely saw my grocery and gas bills double, easily. It's really hard to live in California right now, since every item at the grocery store got their with Diesel fuel (which is 5.00, peaked at 8 in the summer).
- UncleOxidant 4y agoThe layoffs in tech so far are a drop in the bucket. The pace of hiring overall surged unexpectedly in January (517,000 jobs added) - that's going to keep the Fed wanting to raise rates. On the other hand, tech (and finance) layoffs probably impact the economy more because those being laid off are generally making higher salaries than most other industries. You've gotta wonder if tech layoffs are going to start hurting local economies in the Bay Area and perhaps Seattle.
- ajross 4y agoThat $4B number was a huge outlier, though. Here's the FRED graph (which should be a required link any time someone wants to talk about economics numbers): https://fred.stlouisfed.org/series/PSAVE https://fred.stlouisfed.org/series/PSAVE The combination of restricted consumer economies and extensive government assistance produced a savings boom the likes of which we have basically never seen in the US in the era of modern economic data. And it's over, and so naturally consumers are spending down their bank accounts to the levels that they felt were appropriate before the pandemic. The point is that the current conditions are a much better approximation to "normal economy" than what was happening in 2020/21. You can explain the inflation burp very well via the savings data. But trying to read a recession into it seems IMHO pretty ridiculous.
- mock-possum 4y agoI’m helping! Being unemployed sucks. I’m having more trouble than I’ve ever had getting a new job this time around.
- mocha_nate 4y agoSo, you don't have any savings and are using only credit card? You don't have a means to pay off the card, so are using it with the hope of getting a job to eventually pay it off? Just trying to make sure I understand and am not judging
- mock-possum 4y agoYep that’s the situation - i kind of don’t know what else to do. Unemployment covers my mortgage and utilities, but that’s it.
- marban 4y agoAs European who lived in the US for a while, I'm still baffled about the lax concept of paying off debt on (multiple) credit cards, vs. the strict monthly, limited and unavoidable debit from one's checking account.
- rootusrootus 4y agoIt's all about cash flow. That has a huge value depending on your personal situation. But for a lot of poorer folks (and some wealthier ones with poor habits) it's just a way to temporarily spend more than you make. That's not a good use for credit cards, of course. The superior protection of your assets from fraud is icing on the cake.
- Tokkemon 4y agoWell they abolished debtor's prisons a while ago...
- ericmay 4y agoIt varies by person, but if you are moderately responsible and have a budget or at least a good handle on your monthly income you would be stupid to not, say, buy things using Apple Card (just an example) with Apple Pay for 2% daily cash back. In addition, if someone swipes your debit card and steals the money from your account you are screwed. If someone swipes your credit card you just get a new card and nothing bad happens to you. You also have protections from bad sellers/merchants through chargeback mechanisms. You just use the credit card as the debit card and you are good to go. Certainly not everyone can handle that and there's probably a society-wide problem here but that doesn't detract from the individual decision to be made in the operating environment.
- trashface 4y agoUsing debit-only can backfire on you, I did this for years and when I went to buy a house, banks were like, you have no credit. I was confused because I had various utility bills and they showed up on my credit report, and I had a score from those. But for house loans they ignore those, and only look at credit cards and actual loans, which I had none of. So I had to get a credit card and put off buying a house for a year until I could build the credit they were looking for. Turns out it was pointless since I was self-employed they wouldn't give me a mortgage anyway (wish they had mentioned that up front, but they didn't). Ended up buying a small house with savings, which really hurt my future wealth, but oh well.
- ajross 4y agoHeadline is spun. Current rate data is hugely confounded by the pandemic. In fact consumer debt dropped like a rock during the pandemic and is bouncing back to something that looks decidedly normal to me (higher than the 2011-2012 recovery, much lower than the 2002 dot com aftermath, etc...). Please look at FRED charts when discussing this, I had to pull out one for personal saving in another comment in this topic too: https://fred.stlouisfed.org/series/CDSP https://fred.stlouisfed.org/series/CDSP
- Tokkemon 4y agoAlso, piles of middle class people took those stimmie checks and applied them directly to outstanding credit cards. Now people's habits are just coming back.
- babypuncher 4y agoThis has been going on for a year now. Some indicator reverts to what it looked like pre-pandemic and people act like the world is ending.
- trey-jones 4y agoI've been short selling MA and V for a decade. Alas, no good so far, but one day it's gonna work!
- disambiguation 4y agoI wonder if this approximates the rate of inflation. Assuming spending behavior is relatively constant, then debt must grow equal and opposite to the declining value of the currency. ex. your money gets you 20% less stuff now, so you have to spend ~20% more to maintain your standard.
- bluedino 4y agoI'd like to see the numbers on services like Affirm that are plastered all over the place.
- jrmg 4y agoI wonder how much of this debt is rotating debt that’s paid off every month? I buy almost everything on credit/store cards - because with 1-5% back it seems stupid not to* - but I pay them all off every month. I would argue this kind of ‘monthly’ debt should is not _really_ debt that should be counted in overall stats. I suspect many ‘middle class’ people do the same. I’m not sure it’s enough to skew the overall number by orders of magnitude - but it surely is at least a measurable amount. *It is manifestly unfair that richer folks who can get good credit cards end up paying less for everything than poorer folks who can’t, but that’s a different conversation…
- dcolkitt 4y agoAs much as this makes a scary headline, credit card debt is almost exactly in line with wages. From January 2020 to today credit card debt grew 11%.[1] Over the same period nominal wages grew by 16%[2]. So if anything the current US consumers have a healthier ability to service their credit card debt than the already healthy numbers pre-pandemic. This is corroborated by the credit card delinquency rate which is still lower than any single year in pre-pandemic history[3] Scare headlines like this are good for generating clicks, but ignore the basic reality. Most years credit card debt will hit a new record, because most years total GDP and consumer spending increases. [1]https://fred.stlouisfed.org/series/CCLACBW027SBOG https://fred.stlouisfed.org/series/CCLACBW027SBOG [2]https://fred.stlouisfed.org/series/CES0500000003 https://fred.stlouisfed.org/series/CES0500000003 [3]https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS
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