Outstanding Credit Card Debt Reaches All-Time High—Should We Be Worried?
Credit card debt in America has reached an all-time high, according to the Federal Reserve’s latest consumer credit report. In November, revolving debt increased by $11.2 billion to a total of $1.023 trillion. That is higher than the pre-recession high of $1.021 trillion.
Revolving debt is mostly comprised of credit cards. In general, revolving debt is any debt that offers a replenishing balance. Pay off your $750 credit card bill and you still have a $750 line of credit to use. With non-revolving credit such as a personal loan, the credit line is finite, regardless of payments made.
At first glance, this sounds like a bad situation for America. We’ve exceeded the debt levels that created the Great Recession. Should we be worried?
The short answer is no, or at least, not yet. As UBS Credit Strategist Stephen Caprio pointed out, the ratio of credit card debt to gross domestic product is lower now than it was in 2008: 5% vs. 6.5%. Our economy is healthier now than it was 10 years ago, so increasing credit card debt is not as pressing a concern.
Caprio also noted credit card delinquencies are currently at 7.5%, much lower than the 15% delinquency rate of the recession. It’s even lower than the historical average of 9%. Despite having high credit card balances, Americans have proven they can manage their money and pay their debts on time.
Before you completely let your guard down, take a moment to assess your personal debts. Are you doing everything you can to pay down your credit card balances? Last month, the Federal Reserve raised benchmark interest rates, which means the interest rate on your credit card has probably already increased. This will lengthen the time it takes to pay off your balance and increase the amount of interest you pay.
Get ahead of the curve, and make a financial plan to eliminate debt in 2018. The new year provides the perfect opportunity for you to improve your financial situation.