We like to crack a joke about this, but the reality is just too sobering. Consumer credit-card debt in the US has hit an all time high. The poor economy, a consumption-driven culture, and predatory banks offering credit to those who can’t pay. These facts from the current Huffington Post contradict a recent article in Time Magazine celebrating an apparent decline in overall household debt. But if you read the fine pint in the Time article, you see that the gross number drop is cause by massive loan defaults across the country. As Martin Crutsinger writes in Huff Post,
Americans swiped their credit cards more often in October and borrowed more to attend school and buy cars. The increases drove U.S. consumer debt to an all-time high.
The Federal Reserve said Friday that consumers increased their borrowing by $14.2 billion in October from September. Total borrowing rose to a record $2.75 trillion.
Borrowing in the category that covers autos and student loans increased by $10.8 billion. Borrowing on credit cards rose by $3.4 billion, only the second monthly increase in the past five months.
The strong rise in borrowing came in a month when Americans cut back on consumer spending, reflecting in part disruptions from Superstorm Sandy.
Many consumers may also have scaled back because of fears about the “fiscal cliff.” That’s the name for automatic tax increases and spending cuts that will take effect in January if Congress and the Obama administration fail to strike a budget deal by then.
Consumer spending drives roughly 70 percent of economic activity.
Economists think that it could bounce back in November. But the underlying trend remains weak because with unemployment remaining high, households don’t have the incomes to spend.
Many consumers have been reluctant to build up credit card debt, which typically carries steeper interest rates than other loans.
Credit card usage has fallen sharply since the 2008 credit crisis. Four years ago, Americans had $1.03 trillion in credit card debt, an all-time high. In October, that figure was 17 percent lower.
Household Debt Has Fallen to 2006 Levels, But Not Because We’ve Grown More Frugal