Are Americans Still Addicted to Credit Card Debt?

Credit, Credit Cards, Money, Spending, Consumers

While the side effects of the Great Recession are still persisting throughout Main Street, some Americans are once again feeling confident with higher debt levels. After making significant progress in recent quarters, credit card debt is making a comeback.

Consumers are having a difficult time abstaining from plastic. In 2013, the nation added $38.2 billon in credit card debt, up 8 percent from the $35.2 billion gain in 2012, according to a new analysis from CardHub. Despite paying down $32.6 billion in credit card debt in the first quarter, consumers added $42.1 billion of debt during the fourth quarter, representing the biggest quarterly increase in two years.

“Context is extremely important when it comes to evaluating credit card debt trends,” CardHub CEO Odysseas Papadimitriou said. “One could easily come to the conclusion that 2013 was a healthy year for consumer spending given the fact that outstanding credit card debt increased only $10.4 billion while defaults fell 16.7 percent. But that would fail to take into account the $27.7 billion that we defaulted on, yet still owe. As has been the case in recent years, the first quarter of 2013 was the only one in which we paid down debt.”

Although default rates are nearing historical lows, the average household’s credit card balance has increased over the past four quarters and now stands at $6,971. Households owed an average of $6,591 to credit card companies at the beginning of 2013. If Americans are taking on more credit than they can handle, default rates could easily rebound in the coming years. Over the past five years, consumers defaulted on $267 billion in credit card debt.

Screen Shot 2014-03-10 at 2.44.10 PM

CardHub’s report reinforces the recent theme of more consumer debt. Last month, the Federal Reserve revealed that total household debt, which includes mortgages, student loans, credit cards, and auto loans, reached $11.52 trillion at the end of 2013, up $180 billion from the prior year. It was the first year-over-year gain in overall debt since 2008. Meanwhile, Bankrate.com finds that 28 percent of Americans have more credit card debt than emergency savings, the highest rate in the past four years.

More From Wall St. Cheat Sheet:

Follow Eric on Twitter @Mr_Eric_WSCS