July 25, 2012

Credit Card Debt still on the rise

Credit card debt, one of the country’s largest contributors to bankruptcy jumped by the biggest month-over-month percentage since November 2007 (the month before the official start of the Great Recession, if you’re keeping count). Revolving balances increased by $8 billion in May to $870.2 billion from the month before, according to the Federal Reserve’s latest stats released Monday. An increase in credit card is traditionally considered a good sign for the economy. Logically, one would assume that a willingness to spend on credit is a sign that consumers are finally beginning to grow more confident about their ability to take on and pay off debt. But not so fast; a look at several other economic figures from the month seem to paint a different picture, and present a need for different theories to explain this surge in debt.

The first figure poking a hole in this optimistic outlook is the fall in consumer confidence, which remains far from recovered after the Great Recession. Combined with the lack of significant growth in job creation or GDP, the recent decrease in this figure makes it difficult to believe that consumers are spending more on their credit cards as part of a new wave of optimism about their future prospects. Unfortunately, it is more likely that the surge in May’s debt came as a result of a few combined factors, including the expiration of unemployment benefits. With an estimated 242,000 Americans losing benefits in May, more than 7.5 times more than in February, it is quite possible that many people were forced to turn to credit cards in an effort stretch their quickly shrinking resources. Of course, this too is just a theory, and there remains hope that consumer confidence is poised to rise along with their debt.

Read more: May credit card debt surges | Bankrate.com http://www.bankrate.com/financing/credit-cards/may-credit-card-debt-surges/#ixzz21bUTyo3W

Posted In: Bankruptcy