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Crushing Debt Alone

How credit card debt is tied to the economy

After the recession, out of economic insecurity many consumers stopped relying on credit as much. And while this is certainly still true for some, according to the Federal Reserve’s monthly credit report, revolving debt — which is mostly comprised of credit card debt — rose to $870.2 billion. This represented an $8 billion increase from the previous month.

A rise in credit card debt is often a good sign for the economy. It means people are becoming more confident and are therefore willing to take on more debt. However, even though this is normally the trend, it turns out this may not be entirely true for consumers now.

Looking back to June, there was not much job growth. According to the Labor Department, there were only 80,000 jobs added in the U.S. that month. To give perspective on what this means, in January alone there were 243,000 jobs added. February also saw 227,000 more jobs. However, for April, May and June combined there were just 285,000 added.

Due to this, while May saw a record percentage increase in revolving debt since 2007, it’s expected spending was not as high the following months.

And, while the American Bankers Association’s 2012 Consumer Credit Delinquency Bulletin reports people were getting better about making loan payments on time — credit cards, auto loans and mortgages — the truth is that if the economy continues to struggle, consumers may once again start to fall behind on those payments.

In addition to the possibility of falling behind, many of those who made it through the recession are also in a vulnerable situation as most spent their savings leaving them no safety net in case there is an emergency. This can lead to even more debt that cannot be paid back.

Source: Fox Business, “Consumers Credit Card Balances Shoot up in May,” Kelly Dilworth, July 11, 2012

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