Credit Card Debt on the Rise
Published January 9th, 2008 in Credit News.
According to the Federal Reserve Board, credit card debt rose at an 11.3 percent annual rate in November after rising at an 8.5 percent rate in October.
By comparison, credit card debt rose at a rate between 2 and 4 percent from 2003 to 2005, so the increase is notable.
In the previous two months, credit debt growth had slowed, to rates of 2.6 percent in September and 1.0 percent in October.
During November, consumer credit increased at an annual rate of 7.4 percent as U.S. consumers added $15.4 billion to their “collective tab”, with total short-term debt rising to a record $2.51 trillion.
The overall increase was nearly double the $8 billion economists surveyed by Bloomberg News had predicted.
It was led by credit card use, along with non-revolving debt, such as auto loans, which increased at a rate of 5.0 percent in November, after decreasing at a rate of 3.5 percent the month before.
The average credit-card interest rate in November was 13.08 percent, while the average interest rate on an auto loan was 4.2 percent.
It’s the latest sign that homeowners are having more difficulty balancing their checkbooks without the equity in their homes to lean on.
Over the last five years, many homeowners were playing the dangerous game of accruing credit card debt, refinancing their mortgage to pay off the debt, and then repeating the process.
But with home values sinking, many borrowers are either upside-down on their mortgage, or have simply stripped all the equity out of their home.
It’s likely homeowners will decide to curtail their spending in order to avoid payment default and possible foreclosure.
In fact, according to a recent poll conducted by Harris Interactive, 42 percent plan to pay down their level of debt this year, while 41 percent expect to cut back on their household spending.
