If the classic metric of increased credit card spending equates a stronger economy, then some good news is upon us: credit card debt has increased for the first time since 2008. The credit card trends report released by Equifax this week shows that the total balance of credit cards in the United States increased by 0.6% between the second quarters of 2012 and 2013 – something that has not occurred since the first quarter of 2008.
While the increase was fairly minuscule - $536 billion in 2013 compared to $533 billion in 2012 – the reverse in trajectory marks an end to a rapid decrease in credit card debt that has seen roughly half of its debt slashed over the past five years. In 2008, the total amount of US credit card debt stood at nearly $1 trillion.
Many analysts and individuals still have questions about whether this means that there is a clear improvement in the economy and how it relates to credit. Some have pondered that the decreases in credit card debt were primarily a result of lack of access, and that increases in credit card debt outlined in this most recent report may reflect a reversal of that trend due to necessity. In other words, are people now using credit cards because they can afford to, or because they have to?
Other areas of debt in the economy have not shown the same trends over the past several years, which may explain in part why credit card debt as an individual metric has decreased. Student loan debt has increased 11% in the past twelve months alone and now comprises the largest non-mortgage element of debt in the economy. Auto loans have also increased by 11% over the same time period.
Most agree that these metrics now show that the US economy is stable, but growth remains anemic in the wake of the Great Recession. As more and more individuals seek to pay down their debts and avoid costly student and credit card loans, demand for credit cards and mortgages continue to lag historical trends. This does, however, paint a brighter picture for the future, as more Americans will be free to spend a higher percentage of their incomes on products and services rather than interest and debt.
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