The U.S. national debt is an astounding $20 trillion+ and climbing, but American consumers are doing plenty on their own to amass foolish and dangerous amounts of debt. All thanks to the proliferation of credit cards, Americans now hold more than $1.023 trillion in debt.
As much as I hate the fact that our government spends without anything to compare, I’m even more befuddled by the fact that We the People are seemingly just as addicted to unhealthy spending habits. Such habits will eventually sink our government if not radically changed, and they will also sink our lives individually if we do not gain control of our money.
According to USA Today, the highest level of credit card debt until this point was in April 2008, when consumers reached $1.021 trillion of credit card debt. The Federal Reserve claims that the higher amount of credit car debt indicates higher consumer confidence, but it also gives troubling warning signs about the future.
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Revolving credit, mostly credit cards, increased by $11.2 billion to $1.023 trillion, the Federal Reserve said Monday. That nudged the figure past the $1.021 trillion highwater mark reached in April 2008, just before the housing and credit bubbles burst. Over the past year, revolving credit has surged by $55.1 billion, or 5.7%, according to the Fed and Contingent Macro Research.
If you’re not concerned by the fact that millions of American have amassed over $1 trillion in credit card debt, maybe you should also consider the fact that they also have more than $2.8 trillion in student loan and car loan debt as well.
UBS Credit Strategist Stephen Caprio says that this kind of debt isn’t necessarily the best thing, but it allegedly does not pose the same threat to the economy that it did in 2008.
“It’s a potential early warning sign but not a financial stability issue” for the broader economy, he says.
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Still, Caprio notes that credit card delinquencies have increased to about 7.5% from 7% a year ago, underscoring, growing stresses for low-income households in particular. While that’s still below the 15% delinquency rate reached during the financial crisis and the 9% historical average, he says the increase over the past year raises some concerns. With jobs and income growing, the rise isn’t creating significant problems now but it could if the economy and labor market take a downward turn.
Quite frankly, he underestimates that damage that credit card debt has on people’s lives, and on the economy as a whole. See, here’s the way that credit card debt destroys your financial life…
When a person buys something they cannot afford up front, they use a credit card. In the process, they get the item, but become the slave of the lender. A person must send chunks of their income to other people to pay for what they could not truly afford.
Rather than building their own personal wealth, they are sending their money to the banks and not getting ahead. The way that Dave Ramsey puts it is that people are buying stuff they don’t need with money they don’t have to impress people they don’t really like. It’s just madness.
Credit cards are dangerous. The research shows that people spend more, and more frequently, when they swipe plastic. Using the card puts the benefit ahead of the cost, and it becomes more difficult to conduct accurate cost-benefit analyses because the equation is obscured by immediate gratification.
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Some may say “It’s okay to have credit cards because we pay it off at the end of the month.” Claim that all you want, but the research shows that one spends way more with a credit card than with a debit card or with cash.
Millions of Americans are trapped in credit card debt. It’s a self-inflicted wound that is stealing their ability to get ahead in life. The obsession with credit cards in our society is extremely unhealthy. This kind of behavior is no way to get ahead in life. As Dave Ramsey says, it’s time for some plastic surgery, America. Wake up!
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