Credit Card Debt Increasing

Credit card debt is showing an alarming increase in recent months. A report from CardHub.com reveals that consumers increased their credit card debt by $18.4 billion in the second quarter of 2011. The previous quarter saw a decrease of more than $32 billion. The Federal Reserve reports that total revolving consumer debt, of which 98 percent is credit card debt, stood at $792 billion as of July 2011. (1) At any moment, a large number of consumers are paying down their debt and other consumers are increasing their debt. When increases or decreases show up in the statistics, it indicates that one group temporarily overwhelmed the other group in terms of dominant behavior.

The report from CardHub.com highlights the fact that the increase in debt relative to the second quarter of 2010 was 66 percent higher. Relative to the second quarter of 2009, it was over 368 percent higher. (2) This is a disturbing trend because it indicates that consumer spending through debt is increasing at a sustained rate. A report indicating that inflation is playing a role in this solves the mystery of why this increase is occurring. Consumers are using credit cards to bridge the gap between their incomes and gas or food prices. (3)

Customers of store chains like Wal-Mart and Family Dollar Stores, Inc. are cash-strapped, according to reports issued by the CEOs of the two companies. People who live paycheck-to-paycheck do not have the available funds to cover sudden increases in price, so they are using credit cards to make up the difference. Moreover, the increase in credit card balances is being carried over from month to month, resulting in high interest charges in addition to the burden of the increasing debt itself. (4) This is making credit card debt consolidation difficult for consumers.

As the level of indebtedness increases, the potential for a new financial crisis increases with the debt. Consumers in debt may suddenly reach a point where they can no longer afford even basic necessities. This is not a good recipe for economic recovery or social integrity. The paycheck cycles combined with long-term unemployed individuals and workers whose incomes are not keeping up with inflation are brewing another storm in the economy. Slow income growth, increasing debt expansion and rising inflation do not bode well for individuals attempting credit card debt consolidation or trying to pay down their debts and save.