Study: U.S. consumers racking up more debt this year

Consumers’ attitude toward debt creation is reaching new post recession heights as Americans are expected to rack up more than $60 billion in new credit card debt by the end of 2014, according to CardHub. This CardHub study also predicts consumer credit card debt will rise 55% over last year’s ending levels.

NerdWallet reports the average U.S. household credit card debt is $15,608 this holiday season. This statistic factors in only those households carrying debt. The U.S. household consumer debt profile also includes average mortgage debt of $154,847. That does not include the average student loan debt of $32,397.

While consumers are reaching for the plastic cards more this year, the combined revolving debt of $881.8 billion owed on credit cards is still lower than the $906.7 billion owed by consumers in 2010.

CardHub CEO Odysseas Papadimitriou said the study reveals good and bad news for consumers and the overall economy. He said consumer credit card debt statistics, which are an indicator of spending trends and household financial health, support the notion of a rapidly improving economy that is further evidenced by an unemployment rate hovering at 5.8% in November.

“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,” Papadimitriou said.

He voiced concern that while spending habits may be sustainable for now, underlying attitudes toward debt have not improved since the Great Recession. He points to four consecutive quarters of declining credit card performance. 

“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,” Papadimitriou said.

With stagnant income growth during a virtual zero interest rate climate, credit consultants worry that debt accumulated today maybe harder to pay-off if rates begin to rise. Credit card companies charged off $6.012 billion in the third quarter of 2014, which was 2.89% of its overall debt. 

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.

John Silvia, chief economist with Wells Fargo Securities, said consumers have been gradually adding to their debt levels in the past two years but that’s not a necessarily a bad thing as the consumer spending is still two-thirds of the nation’s Gross Domestic Product.

“We have recently seen growth in revolving credit increase, to cycle-highs in excess of 3% year-over-year, while consumer loans reported by the Fed’s report were up 3.8% in October. This is encouraging news for economic growth going forward, as the consumer seems to be getting more comfortable engaging in spending through borrowing, whether it be through credit-card use (revolving credit) or otherwise,” Silvia said.

He said consumer credit card spending has been responsive to changes in interest rates historically but that may not be the case if rates begin to rise. His own analysis using data back to 1994 show that for every 1% interest rates rise, consumer spending is reduced by 1.29%. Since 2009 the reduction has been just 0.44% which an indication that changes in monetary policy are not likely to have as large of an effect on the pace of consumer spending next year.