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Wednesday, December 13, 2017

$1 trillion credit card debt looming, Wallet Hub says

Personal finance website WalletHub stated a Federal Reserve rate hike is more than 99 percent likely to occur on Wed., Dec. 13, 2017, according to recent forecasts. "The move oculdn't come at a worse time for consumers," WalletHub stated upon releasing its December Rate Hike Report and Q3 2017 Credit Card Debt Study.

WalletHub projects 2017 will end with more than $50 billion in new credit card debt. "This fifth rate hike in recent years coincides with record increases in credit card debt levels that put us on pace to cross $1 trillion in outstanding balances by the end of the year," said Diana Popa, WalletHub Communications Manager. "And it contributes to an unwelcome holiday present for consumers: an extra $7.4 billion in credit card interest charges in 2018."

Key findings

WalletHub's main findings from the study follow:

  • As of Q3 2017, outstanding credit card debt is at the second-highest point since the end of 2008, and we're likely to cross the $1 trillion mark by the end of the year.

  • The $22.2 billion in credit card debt that we added in Q3 2017 is 46% higher than the post-Great Recession average. It also the highest Q3 accumulation since 2007.
  • We ended 2016 with $87.2 billion in new credit card debt, most for a year since 2007 and 130% above the post-recession average.

  • Since the end of the Great Recession, consumer performance has regressed on a year-over-year basis in two out of every three quarters.

  • 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.

For more details on the study, visit wallethub.com/edu/credit-card-debt-study/24400/

Credit card debt can be a plus

This may or may not mean trouble down the road. With a major tax overhaul with far-reaching impacts expected on every sector, no one can predict how credit card debt will affect the overall economy and payments in particular. But Discover.com pointed out that personal consumer spending is critical because it accounts for more than two-thirds of the U.S. gross domestic product.

"It's difficult for consumers to see debt as a good thing, as it means they have an obligation to pay someone out of their future earnings," the website states at www.discover.com/credit-cards/resources/how-does-credit-card-debt-affect-the-economy . "It can also mean incurring costly interest charges. But credit card debt can actually be a positive thing from the standpoint of the entire economy.

"When people make charges to their credit cards, they may be using them as a means to finance purchases that they couldn't otherwise afford. Because consumers are able to make these purchases, businesses are then generating revenue they might not have received, stimulating the economy."

The site further mentions recent Gallup survey findings that 76 percent of adults in the United States reported having at least one credit card, and 48 percent acknowledged carrying credit card debt. "When you consider how these tens of millions of credit card users are able to make purchases just because they have a credit card, it's easy to see how credit card debt can indicate healthy levels of economic activity," Discover added. end of article

Editor's Note:

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