2016 Credit Card Debt Study: Trends Insights
by Odysseas Papadimitriou. CardHub CEO | Jun 8, 2016
With the global economy in flux and debate raging over the timing of Federal Reserve rate hikes, data that speaks to the financial health of the average American household can be quite telling. Credit card debt statistics, in particular, reflect consumer sentiment and can foretell overleveraging bubbles that may trigger constriction across lending markets.
It is with that context that some might view the fact that U.S. households paid down roughly $26.8 billion in credit card debt during the first quarter of 2016 as decidedly good news. But it’s not. Not only does this paydown come on the heels of a year in which we added an astounding $71 billion to our tab, but it’s also the smallest first-quarter debt reduction since 2008.
As a result, CardHub is projecting that we’ll end 2016 with roughly $1 trillion in outstanding balances for the first time ever, which would bring the amount owed by the average indebted household to more than $8,500. You therefore have to wonder how long we can keep this up.
- Change in Outstanding Credit Card Debt: -$33,753,620,600
- Credit Card Charge-Offs: $6,994,395,551
- Net Result in Debt Load: -$26,759,225,049.34
- Relative to Q1 2015: -23%
- Relative to Q1 2014: -17%
- Relative to Q1 2013: -18%
- Relative to Q1 2012: -22%
- Relative to Q1 2011: -18%
- Relative to Q1 2010: -30%
- Relative to Q1 2009: -160%
- We paid off $26.8 billion in credit card debt during the first three months of 2016, which isn’t as good as you might think, considering that it’s the smallest first-quarter paydown since 2008 and nearly 25% below the post-recession average.
- This first-quarter pay down covers just 38% of the $71 billion we added to our tab in 2015.
- With 8 of the last 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits.
- Although the average indebted household’s balance dipped to $7,597 during the first quarter, this still represents a 6% increase relative to Q1 2015. It’s also just $831 below the tipping point CardHub identified as being unsustainable.
- Despite credit card debt levels trending significantly upward, charge-off rates remain near historical lows. Something clearly has to give, and it does not seem to be our spending habits.
- The first quarter of 2016 shares a lot of similarities with Q1 2007, including the pay-down amount, its size in relation to the previous quarter’s build-up and the charge-off rate at the time. That is not good news for consumers, considering the financial turmoil that followed the last time around.
Please note that figures listed in the Main Findings section of a particular quarter won’t always match those in the Data Graphs section of this report, as the Federal Reserve regularly updates historical data with new research. Figures included in each Main Findings section reflect the information that was available at the time of that quarterly study being conducted, while the Data Graphs section reflects the most recent data available.
Net Result of Consumer Credit Card Debt Q1 2008 – Q1 2016
Net Result in Debt Load
Net Result in Debt Load – Green indicates that consumers decreased their debt relative to the previous quarter. Red indicates they increased their debt relative to the previous quarter.
Relative to Same Period – Green indicates that consumers either paid down more debt or accumulated less debt than they did in the previous two years. Red indicates that they either paid down less debt or accumulated more debt than they did in the same quarter in the previous two years.
Annual Net Result of Consumer Credit Card Debt 1986 – 2015:
Annual Debt Load Increase/Decrease
Consumer Credit Card Debt and Charge-off Data (in Billions):
Total Outstanding Credit Card Debt
Change in Outstanding Credit Card Debt
Quarterly Credit Card Charge-Off in Dollars
Net Result in Debt Load
Quarterly Credit Card Charge-Off in Dollars
Average Credit Card Debt per Household
Tips for Managing Debt
- Make a Budget (and Stick to It): It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That is why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. And most importantly, once you develop your budget, make sure to stick to it or else you’ll have simply wasted your time.
- Build an Emergency Fund: With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.
- Improve Your Credit: This might sound a bit counterintuitive, considering that increased access to credit provides more opportunity to incur debt, but improving your credit standing will have a dramatic impact on the cost of your debt and, thus, how quickly you can pay it off. Better credit can also make it easier to find a job or a place to live – both of which impact your bottom line.
You can determine your starting point and get personalized advice by signing up for our sister site WalletHub, which provides free credit scores. full credit reports and various other helpful tools.Try the Island Approach: The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.Use the Snowball Method to Strategically Pay Off Amounts Owed: In order to become debt free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.Evaluate Your Job Situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.