Americans are not on a good trajectory for credit card debt. By the end of the year, consumers will take out $47 billion in new credit card debt, a new analysis predicts.
This reverses a trend according to John Kiernan, a senior analyst at CardHub .com.
"For all of 2012 we saw consumers continue to rack up consumer debt at a somewhat disturbing rate," Kiernan says, "but there was always a silver lining that we were doing better than the corresponding quarters in 2011."
The analysis comes from the first quarter "Credit Card Debt Study" by CreditHub.com, a credit card comparison website. While the second quarter of 2012 saw credit card debt increase by $17.6 billion, it was a 9 percent lower increase than the second quarter of 2011, where credit card debt surged by $19.3 billion. The increases in debt in the third and fourth quarters of 2012 were, respectively, 19 percent and 9 percent lower than 2011.
"That changed, unfortunately, in the first quarter of 2013," Kiernan says.
In January, February and March of this year, the credit card debt load went down $32.5 billion. This paying down of debt takes place the first quarter of every year and then trends back up the rest of the year.
Kiernan explains that in the first quarter, people get their salary bonuses and tax refunds and pay down their credit card debts from a busy holiday shopping season. "There is a lot of spending through the rest of the year," Kiernan says.
Andrew Schrage, the editor of the Money Crashers financial website, sees the paying down and then racking up debt each year as an unfortunate trend.
"I know plenty of people who use their tax refund as a safety net to subsidize their credit card debts," he says. "They know in the back of their minds that a big check is coming at the beginning of each year; therefore, they barely keep their heads above water while planning to pay off their balances at tax time."
The problem Kiernan sees isn't that $32.5 billion was paid down on credit card debt in the first quarter, but that $32.5 billion is 7 percent less than what was paid down in the first quarters of 2012 and even 1 percent less than the first quarter of 2011. In fact, it is the smallest first-quarter pay-down in the past four years.
Every quarter for a year, the figures were better than the previous quarter. But Kiernan says this appears to have changed.
"We reversed course and we are doing worse than we have in the past," Kiernan says. "We no longer have that one bright spot to point out. Consumers are reverting back to the point where they are living off credit and spending beyond their means. They can make things work as long as the economy is doing fairly well … people are staying on their feet by making minimum payments."
The default rate is one bright spot, Kiernan says; it is now at its lowest point since the fourth quarter of 2006. But people are not paying down their debt as much as they could. The average household credit card debt is $6,591.
Kiernan says as people rack up more debt, more of that monthly payment will go to interest and the debt may become unsustainable.
Schrage thinks that people paid less on their credit card debts in the first quarter of 2013 because of the slowly improving economy. "If you look at the statistics in the report, the highest amount of credit card debt was paid down when the country was either knee-deep or just beginning to emerge from the recession (28 percent more paid down in the first quarter of 2009 and 17 percent more in the first quarter of 2010)," he says. "Now that the economy is doing much better, it seems that the average American consumer has become much less focused on paying down debt and is more willing to spend money on discretionary purchases."
The path is a dangerous one, according to Kiernan.
"We clearly haven't gotten the lesson from the Great Recession that we can't habitually overleverage ourselves and expect to come out unscathed," he says. "We haven't thought what is a necessity and what is a luxury in this post recession environment. A lot of people think the economy is getting better, we are out of the woods, we just go back to what we were doing before."