The Strategist

Credit card debt in the US is approaching pre-crisis levels

05/23/2016 - 14:41

In 2016, outstanding credit card debt in the US could reach $ 1 trillion. Thus, the debt level is approaching the record plank of 2008 – then, the debt reached $ 1.02 trillion. According to experts, the growth of debt on credit cards indicates stabilization of the economy and increasing consumer confidence. On the other hand, this rate is also influenced by aggressive policy of banks issuing credit cards to high-risk borrowers, and increasing their credit limits

meddygarnet via flickr
meddygarnet via flickr
According to The Wall Street Journal, citing data from the Federal Reserve System, total debt on credit cards in the US could reach $ 1 trillion this year. Thus, the amount of debt is going to approach pre-crisis levels (recall that record high of $ 1.02 trillion was reached in July 2008). Then, level of private savings of Americans accounted for 4.4%. It rose to 11% by December 2012, and now has fallen to 5.4% once again. In the first quarter of this year, credit card debt was $ 951.6 billion, which is 6% more than in the same period of 2015, and is the highest level since August 2009.

These figures suggest that consumers are moving away from the crisis-induced austerity. According to experts, such behavior is triggered by sustainable economic development and improvement of the labor market situation, which has a positive effect on consumer sentiment. On the other hand, the situation may be partly caused by aggressive policy of banks amid low interest rates. The credit organizations are issuing more cards, increasing credit limits and offering customers discounts and additional services. Banks are increasingly frequently granting loans to borrowers not enough reliable and solvent, which is associated with high risks. According to Equifax credit bureau, 10.6 million credit cards for high-risk borrowers were issued in 2015, which is 25% higher than a year earlier. This is the highest figure since 2007.  

In total, 104 million credit cards were issued in the United States last year, which is 6.5% more than in 2014 and 47% more than in 2010. Bank Capital One, holds fourth place in the United States for the issuance of credit cards, in the first quarter of this year issued 14% more cards than a year earlier. Amounts of customer purchases via credit cards increased by 20% during this period. According to R.K. Hammer consulting company, return on assets on credit cards this year will range from 4.25% to 4.5% compared to 4% last year. "Credit cards are the best business in the banking industry", - said the company’s Head Robert Hammer.  

Other forms of credit are also gaining momentum. According to Experian credit bureau, outstanding debt on auto loans reached a record $ 1 trillion in the first quarter of this year.