2016 Credit Card Debt Study: Trends & Insights
Credit card debt statistics speak to the financial health of American households and can foretell overleveraging bubbles that may trigger constriction across lending markets. From that perspective, the fact that U.S. consumers racked up a record-setting $21.9 billion in credit card debt during the third quarter of 2016 represents serious cause for concern.
Not only was it the largest third-quarter debt increase since 2007 and the seventh-largest in the last 30 years, but our dismal Q3 2016 performance also comes on the heels of three equally foreboding financial feats, appearing to solidify an ominous trend. We set the Q2 record last quarter, racking up $34.4 billion in new debt, right after recording the smallest Q1 pay-down ($27.5 billion) since 2008. And last year, we added the most credit card debt to our tab ($71 billion) since 2007.
So it is not a question of whether consumers are weakening financially, but rather how long this trend toward pre-recession habits will last and just how bad it will get. Unfortunately, the immediate forecast does not appear too bright. WalletHub projects that we’ll end 2016 with a net increase of roughly $80 billion in credit card debt, which would bring outstanding balances within striking distance of 2008’s all-time record and push the average amount owed by indebted households to a perilous $8,380.
Outstanding credit card debt is at the highest point since the end of 2008, and Q3 did nothing to divert us from a collision course with the $1 trillion mark.
Total Outstanding Credit Card Debt Q1 1986 – Q3 2016
The $21.9 billion in credit card debt that we added in Q3 2016 is nearly 60% above the post-Great Recession average.
Quarterly Net Change in Consumer Credit Card Debt Q1 1986 – Q3 2016
WalletHub expects U.S. consumers to end 2016 with an $80 billion net increase in credit card debt.
Annual Net Change in Consumer Credit Card Debt 1986 – 2015
We now owe almost exactly as much as we did the quarter before the Great Recession officially began. If charge-off rates begin to rise, things could get ugly fast.
|Q3 2016||Q3 2007|
|Debt Accumulation||$21.9 billion||$38.3 billion|
|Total Outstanding Credit Card Debt||$927.1 billion||$927.4 billion|
With 16 of the last 23 quarters reflecting year-over-year regression in consumer performance, it’s clear that we’ve reverted to pre-downturn bad habits.
The average indebted household’s balance rose to $7,941 in Q3 – just $523 below the tipping point WalletHub identified as being unsustainable.
Average Credit Card Debt Per Household Q1 1986 – Q3 2016
The fact that charge-off rates remain near historical lows continues to fuel lenders’ appetites for extending credit, but there will be a tipping point eventually.
Quarterly Credit Card Charge-Off Rate Q1 1986 – Q3 2016
- Make a Budget (and Stick to It): It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That is why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. And most importantly, once you develop your budget, make sure to stick to it or else you’ll have simply wasted your time.
- Build an Emergency Fund: With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.
Improve Your Credit: This might sound a bit counterintuitive, considering that increased access to credit provides more opportunity to incur debt, but improving your credit standing will have a dramatic impact on the cost of your debt and, thus, how quickly you can pay it off. Better credit can also make it easier to find a job or a place to live – both of which impact your bottom line.
You can determine your starting point and get personalized advice by signing up for our sister site WalletHub, which provides free credit scores, full credit reports and various other helpful tools.
- Try the Island Approach: The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.
- Use the Snowball Method to Strategically Pay Off Amounts Owed: In order to become debt free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.
- Evaluate Your Job Situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.
Net Result of Consumer Credit Card Debt Q1 2008 – Q3 2016
|Net Result in Debt Load||Relative to Same Period
|Relative to Same Period Two Years Ago|
Net Result in Debt Load – Green indicates that consumers decreased their debt relative to the previous quarter. Red indicates they increased their debt relative to the previous quarter.
Relative to Same Period – Green indicates that consumers either paid down more debt or accumulated less debt than they did in the previous two years. Red indicates that they either paid down less debt or accumulated more debt than they did in the same quarter in the previous two years.
Consumer Credit Card Debt and Charge-off Data (in Billions):
*Numbers may differ from year to year due to the fact that the Federal Reserve regularly retroactively updating figures. Questions or requests for information can be directed to our media department.
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