America, we have a problem. A big problem.
In 2017, American credit card debt reached its highest point since the 2008 financial crisis. How does that make you feel?
Some people won’t think twice about it – mainly because we live in a society where debt’s been normalized. We go in debt to buy houses, cars, weddings, educations, and more.
Don’t have the money now? That’s fine – pay me later! Does 17% APR work for you? Great!
Credit cards aren’t evil, but we have to realize when we’re being irresponsible with our money. Credit cards should be fully (or mostly) paid off each month or used in emergencies when necessary.
Some people see the credit card debt level as a positive thing; I don’t share that viewpoint. Let’s look at both sides of the situation and you can be the judge.
Reasons to be optimistic
Increased consumer spending is good for businesses and it spurns economic growth. Conversely, if people were spending too little, economic growth would slow and we could dip into a recession.
So, the theory is that more spending means greater consumer confidence, which would certainly be a good thing.
Consumer spending accounted for 70% of the American economy before 2008. Since the Great Recession, lackluster consumer spending (68.8% of the economy, comparatively) has caused America’s GDP growth (total value of goods produced and services provided in a country in one year) to slow to a crawl.
Thankfully, that’s begun to change. Between 2013 and 2016, consumer spending has grown 0.7%, 4.7%, 4.6%, and 2.4%, respectively, year over year.
People theoretically spend more when they have confidence they’ll get the money back, meaning they’re confident in the job market and/or wage growth. It’s a beautiful thing.
I think there’s something more troubling going on, unfortunately.
Reasons to be pessimistic
According to NerdWallet, American household credit card debt (among households with credit cards) increased 2.8% to an average balance of $15,654. When counting all households, the average dips to $7,136.
Also, from 2013 to 2017, the percentage of U.S. households with credit card debt has gone from about 38% to 45.6%.
Clearly, more people are relying on debt.
Unfortunately, some of this may be out of necessity, not preference. While median annual household income has grown 20% over the past decade, medical expenses (34%), “other” expenses (30%), food and beverage (22%), and housing (20%) has outpaced that growth.
To add further insult to injury, the household saving rate decreased to 2.9% at the end of 2017, which is the lowest mark since 2007 (averaged 8.28% from 1959 to 2017). Stock ownership has also dropped from a high of 65.5% in 2007 to 52% today, which begs the question: what are people doing with their money?
If people are reluctant to trust the stock market and the savings rate is too low for it to help anyone achieve long-term goals, it makes sense that more people would turn to consumption, at whatever the cost, to improve their well-being.
In a world where marketing analytics are at their all-time best and brand names infiltrate every part of our lives, people generally aren’t equipped to deal with expenses of daily living rising faster than their incomes. Skyrocketing medical costs only make the problem that much worse, especially given their unexpected nature.
Sure, the increased spending could mean greater consumer confidence. Or, it could mean consumers are increasingly pressured and disillusioned financially.
How you can stay on the right path
The best way to use a credit card is to stay disciplined. Here’s how you do that:
- Limit yourself to 2 credit cards
- Pay off your balances each month
- Check your credit card statements weekly to help you budget / monitor fraud
America’s problem with credit card debt doesn’t need to be become your problem, and yes, I think it hurts the economy more than it helps.
There – I said it.
More importantly… What do you think?
All opinions expressed on this blog are solely those of Home at 30 and are in no way affiliated with any other organization or institution. The purpose of this blog is to give general education and information about investing, wealth, careers, and college; It is not intended to be professional advice.
Author: Josh Ramos
After earning an undergraduate degree in Economics and a Master of Arts in Management at Wake Forest University, Josh has paid off over $110k in student loan debt in 4 years. By founding Home at 30, Josh wants to help you make the most of college, build a successful career, and achieve financial independence.