Credit Card Usage at All Time High

Since consumer spending accounts for 70% of U.S. economic activity, consumer credit levels are monitored closely and considered indicators of the degree to which consumers remain willing to finance further spending with additional credit.

In its most recent monthly release, the Federal Reserve issued data showing that for the month of October 2019, total consumer borrowings rose sharply by a seasonally adjusted $18.9 billion, up from a September increase of $9.6 billion.

Noteworthy is the fact that credit card borrowings rose by $7.9 billion in October, dwarfing a modest $187 million September increase and a slight decline during the month of August.

With such a sharp, sudden rise in credit card usage propelling consumer credit levels to start the fourth quarter, is it safe to assume that credit card usage throughout the first half of 2019 was equally robust? Let’s take a closer look.

At the end of 2018, total outstanding credit card debt exceeded $1 trillion, as it stood at $1,032.4 billion, representing the all time high.

At the end of third quarter 2019, this figure stood slightly lower at $1,023.2 billion, but when we take into account October’s increase of $7.9 billion, this places the October closing figure at $1,031.1 billion, clearly knocking at the door of the all time high.

Federal Reserve data for the month of November 2019 is due for release during the first week of 2020, and it is at this time that a new all time high for credit card debt may go into the record books (only to likely be eventually broken – and perhaps quickly).

Consumer spending within the United States has been strong in 2019, helping the overall economy to offset weakness in business investment made against the uncertain backdrop of U.S. – China trade relations and overall weaker global growth.

During the third quarter of 2019, aggregate credit card debt in the U.S. rose by $21.5 billion – but that actually represented a 22% decrease from Q3 2018, when total credit card debt rose by $27.6 billion.

Average credit card debt by household rose by 4% in Q3 2019 to $8,701 vs. the 2018 figure of $8,365. The Q3 2019 total credit card debt figure of 1,023.2 billion also represented a 4% increase from the prior year number, which came in at $984 billion in Q3 2018. If we look into the earlier quarters of 2019, Q2 demonstrated a whopper of a gain in total credit – as the debt load increased by $35.5 billion – an increase of 64% over the $21.6 billion in additional debt that was registered in Q2 2018.

However, in Q1 2019, the debt load actually decreased by $38.2 billion, registering a similar decrease to what took place in Q1 2018, when the debt load dropped by $40.8 billion.

This seasonal reduction can be attributed to the fact that many consumers make the extra effort during the early stages of the New Year to pay off outstanding balances accumulated during the holiday season. Finally, the quarterly charge-off rate has held fairly steady since Q1 2017 and currently resides near 3.5%.

While credit card debt runs rampant throughout the United States, some areas of the country can handle rising debt levels better than others can.

It follows that certain geographic areas are less equipped to shoulder the growing debt burden of their residents, as rising debt levels juxtaposed against weaker median incomes speak to a prevalence of financial distress at the local level in many cities and towns concentrated throughout the country.

Nine of the top twenty cities with the least sustainable credit card debt are located within Texas and Georgia, for example.

Meantime, as a general rule, many areas within California and the Northeast are better able to withstand rising debt levels, as fifteen of the top twenty cities with the most sustainable credit card debt levels can be found within California, New York and New Jersey.

It goes without saying that any credit card debt must be managed responsibly, and for many reasons. When an individual is just starting out, building a responsible track record of repayment helps establish a healthy credit score and profile, making it easier later on to obtain additional credit at favorable terms – whether that come in the form of expanded credit lines, additional credit cards, an auto loan, a personal loan, or even a home mortgage.

It is also always important to have a clear, realistic, written monthly budget itemizing all expenses and sources of income. Adhering to such a budget implies that the individual will never really get into trouble by building an excessive amount of debt in the first place, as parameters will be defined that reveal how much money should be spent on various categories and to what degree excess disposable income will be available to pay off any debt balances that are incurred.

Building an emergency fund that includes a minimum of six months of expenses will also help make it less likely that you will ever need to rely upon credit cards for basic living expenses in the event of sudden job loss or illness.

Keeping a credit card on hand for emergencies is a good idea, as is having a card available for when travelling. However, it is absolutely never a good idea to use credit cards as a means to “buy” additional goods and experiences that are beyond one’s true standard of living.

Do not fall prey to this type of consumerism. A good rule of thumb to apply, especially to those who are new to credit cards: If you can’t pay for it in cash (or with your existing debit card balance) – don’t buy it!

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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