SPENDING

Consumer debt soars to levels seen in 2008

Report: Balances border on collapse

9/30/2016

Consumers in Ohio and the rest of the nation are on pace to rack up a record $1 trillion in credit card debt by the end of the year, according to a recent report, raising concerns that many Americans have forgotten the hard lessons of the 2008 financial crisis that forced many consumers into bankruptcy.

Once again, consumers are using their credit cards to a greater degree and spending aggressively, charging up $34.4 billion in credit card debt in the second quarter of 2016, according to a new report by WalletHub, a consumer finance site.

That was the biggest second-quarter spike in credit card debt since WalletHub began collecting the data, and nearly 80 percent higher than the quarterly average since the Great Recession, according to the firm. The most recent figures continue the trend from last year when consumers accumulated $71 billion in credit card debt — the most since the recession began in 2007.

“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,” the study’s authors wrote.

Curtis Arnold, founder and editor-in-chief of CardRatings.com, said the aggressive build-up in debt is “alarming,” in part, because it’s occurring in a rising interest rate environment.

In December last year, the Federal Reserve raised the benchmark interest rate by 25 basis points for the first time since 2006, and the Fed is set to meet this week on whether to raise rates even higher after years of keeping them artificially low to stimulate growth in the weak economy. The Fed is expected to again raise rates by a quarter percentage point or do nothing.

But no matter what they do at their next meeting, the Fed will likely raise rates more rapidly in the months to come, creating a snowball effect for credit card borrowers, many of whom will see their monthly payments grow as interest rates climb, Mr. Arnold said.

“Higher debt usually leads to higher default rates. And for a lot of consumers, it doesn’t take a much to send them over the edge,” he said.

So far, credit card delinquencies and charge-off rates are stable. But the average household debt load rose $7,817 in the second quarter — just $611 below the tipping point that WalletHub identified as being unsustainable.

Tim Brandon, a spokesman for Graceworks Lutheran Services Consumer Credit Counseling Service in Dayton, said he believes many area residents are sitting on the precipice of credit card disaster, although he has yet to see a surge of customers seeking counseling to resolve their financial problems.

“We do not see our numbers going up, in terms of clients. But based on what we know, we feel they should be,” Mr. Brandon said.