US Credit Card Debt Is Going Through The Roof

US Credit Card Debt Is Going Through The Roof
Stéphane Renevier, CFA

over 1 year ago2 mins

US households have been using credit at a record pace since Covid, with the measure of revolving credit outstanding – mostly credit card debt, but also other lines of credit – just breaching an all-time high (blue line). Should you be worried?

On one hand, you shouldn’t be: US consumers are sitting on record cash savings accumulated during the pandemic, their debt as a percentage of disposable income is nowhere near the highs we saw in the runup to the 2008-09 global financial crisis, and credit-card debt doesn’t represent a huge part of consumer spending power. Put more simply, this isn’t 2007 again.

On the other hand, maybe you should be a little worried: this suggests that trouble might be brewing under the surface. Often, an increase in credit card debt is a sign that the economy is expanding. But if it happens when inflation is squeezing consumers' budgets, when the cost of servicing that debt is just skyrocketing, and when the economic outlook has never looked darker, there’s probably a more troubling explanation: an increasing number of consumers are being forced to use credit cards to make ends meet.

And while, on average, consumers are in much better shape today, things could turn sour pretty quickly. The savings accumulated during Covid aren’t eternal, and an even higher number of consumers might yet be forced to take on debt to pay the bills if the economy continues to deteriorate and if inflation remains stubbornly high. And when you combine more debt, a higher cost of servicing that debt, and a shrinking disposable income, that represents a much higher risk to the economy.

So while there’s no reason to panic just yet, make sure you watch closely how fast consumer debt rises (right now: fast) and how many consumers are struggling to pay their debt (right now: a small but growing group). Because if the economy sputters and inflation keeps revving, things could turn a lot faster than you might think.



All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG