Growth of credit card-related debt ground to a virtual standstill in March, increasing only by $8 billion. This increase marks the slowest increase in credit card use in the past eight months, which many are saying is a key indicator that most Americans are not willing to use high-interest credit.
The largest sector of growth in this category was student loans and automobile purchases, which saw a $10 billion increase from the previous month. A measurement of total credit card debt, however, was shown to have shrunk by nearly $2 billion, making this month's number ($846 billion) close to 20% below the highest rate of just over $1 trillion in July 2008.
Some economists are saying that a big contributor to this trend is the increase in US payroll taxes that took effect on January 1. As a result of a 2009 tax cut expiring, income taxes for all Americans increased by two percentage points. While in the past many Americans are quick to use credit cards to cover expenses, that phenomenon has ceased to exist in the years following the recession. The reduction of household debt – particularly credit card debt – is a trend that has been occurring for some time and many forecast will continue into the foreseeable future.
The one area in which credit card debt continues to balloon is student loans, with many worrying that this could result in a new bubble in the coming years. In the past three and a half years, student loan debt has increased from $675 billion to nearly $970 billion, a 44% increase. At least some of this debt is originating from desperate graduates who have not been able to find work, and are instead heading back to school for even more education to improve their prospects in the job market.
Despite this trend and the increased payroll tax effects, Americans increased consumer spending by the quickest rate than at any point in the past two years. With a certain fundamental trust restored to the economy, more Americans are now altering their spending habits to reflect a healthier recovery.