Cardhub.com released its 2014 credit card debt study this week and some interesting clues came out as a result. The numbers would suggest that the consumer is back to survival mode again. The study revealed that consumers ended the year with a record $57.1 billion net increase in credit card debt. That amounts to 47% more than 2013 and 55% more than 2012.
With an increase that large, there are likely 1 of 2 thing happening. First, the consumer is spending money like crazy and racking up debt. Second, the consumer is using credit cards as a means of survival.
The reality is that consumer spending and retail numbers don’t support this type of a rise in consumer debt. This all points to the consumer being back in survival mode again.
Credit has really loosened up over the past 2 years. With Crowdfunding avenues such as prosper and the egg, there are even more ways to get credit. The problem is that high interest rates are attached to that credit. It was apparent that the consumer had learned a lesson about high interest rate purchasing on credit cards. The financial crisis was a painful reminder and a good teacher. At this point, financial survival is the only reason that the consumer would take out high interest rate credit. It is about using credit to pay expenses.
There was one other interesting statistic that came out of the survey at cardhub.com. Typically the consumer pays down a great deal of debt in the first quarter because of tax refunds and bonuses. For the first time in the past six years (dating back to the financial crisis) the consumer wiped out almost the entirety of their standard first quarter pay down. During the first quarter of this year, consumer paid down $32.5 billion worth of debt and then turned around and incurred $28.5 billion dollars of debt during the second quarter.
Economists and the government can talk of the increasing confidence and health of the consumer. The underlying trends might be telling a different story.