One would have thought that Americans would have learned their lessons from the economic recession of 2008 and stopped giving into the temptations of debt. Well to a certain extent they did as we saw the consumer credit card debt drop to its lowest levels in 2010 . But apparently, Americans love their debt and can’t seem to stay away from it for prolonged periods! Don’t believe me! Sample this piece of data on April consumer credit
The Federal Reserve reported Friday the total amount of consumer credit had increased $26.85 billion to a total of $3.18 trillion
To put these numbers in prescriptive, the $26.85 Bn increase in April is much higher than the $19.5 Bn increase in March. The numbers clearly seem to suggest that American consumers haven’t learned their lessons and are stacking up credit card debt like anything.
Fastest growth in consumer debt since July 2011
The latest numbers indicate that the consumer debt is now growing at a whopping 10.2% annual rate. It is well established that credit card debt can ruin personal finances but Americans seem to totally ignoring the perils of amassing credit card debt.
Both Revolving and Non-Revolving Credit Debt Is Up
Non-revolving credit which includes auto and student loans increased by $18 Bn in April. The numbers are actually much worse for revolving credit which includes the use of credit cards by consumers which increased by $9 Bn. This puts the credit card debt is now at 12.3% annual gain which is worrisome.
Credit Card Debt While Good In Short-Term For The Economy Hurts The Economy In Long-Term
While increasing credit card debt potentially benefits the economy in the short-term as it signals increased spending activity, the long term implications of credit card debt results in consumers paying huge interest rates on the debt which in turn erodes their purchasing power. Knowing when to buy with cash or credit is a good way to optimize credit card usage but then again the best credit move to improve finances is to pay in full every month