Group Credit Card Debt Rates Soar (Again)

​According to a recent CNBC article, the average American has slightly more than $6,000 in credit card debt. That’s a 3% rise from this time last year. According to the Federal Reserve, credit card debt as a whole has reached record heights climbing to $1 trillion in 2017. Interestingly, the average credit rating score is 675, which is the highest score in a decade (in this case, high is good).

How is it possible that consumer credit card debt is skyrocketing but average credit scores are better than “good?” This question has a few potential answers. The first is that consumers are comfortable with taking on more debt, balancing debt, and handling existing credit card debt - they’re spending but they’re okay with it financially. This could mean, speculatively, that there are more and better-paying jobs nationwide -- most Americans have reported that they are satisfied with the state of the economy.

The other hypothesis is that Americans are simply treading water effectively. By paying minimum credit card amounts, people are just able to afford the things that they are purchasing. The problem with treading water is that it’s not a state that’s easy to maintain, and some analysts are expecting a number of consumers to file for bankruptcy once those minimum amounts become difficult to manage.

One of the reasons for this projection is the fact that many consumers are struggling to make mortgage payments - when you put credit card debt and mortgage payments together, the recipe is one that results in disaster if both amounts are too high (eventually people will not be able to make both payments).

A third hypothesis is that the average person has more credit card debt because credit card companies are freely raising limits based on minimum payments made. This is a vicious cycle. The better you are at paying minimum payments, the higher your allowance will be … resulting in a harder and harder time making those payments due to purchasing more items.

It seems likely that people will not be able to pay minimum credit card debt, mortgages, and student loans in the near future - one of those debts is going to come crashing down. When this happens, we might see a number of bankruptcy filings, foreclosed homes, and a troubled economy. Before that happens, start paying down your credit card debt - even if your limit has been recently increased.