We might like to think we learned a few valuable lessons from the financial crisis of 2008, but new data from the Federal Reserve is raising concerns about the credit habits of American consumers, and the lending practices of their banks. According to a recent report from WalletHub, credit debt in America grew by $92 billion last year, which constitutes the largest year-over-year increase since 2007. In total, the report estimates American consumers’ total credit card debt has exceeded $1 trillion for the first time in history. Jill Gonzales, a senior analyst at WalletHub, attributes the huge accumulation of debt to a recent resurgence of consumer confidence.
“We haven’t seen anything like this,” said Gonzales in an interview with ABC News. “Consumer confidence is at its highest point. Since the recession, people have been saving up for houses, cars … new furniture and appliances, which often get charged on credit cards.”
Although credit charge-off rates remained historically low last year, delinquency rates began to rise in the third quarter of 2017. This is due in large part to the fact that banks have begun extending more credit to consumers with below-average credit scores. It’s important to note that although delinquency rates rose by about a half a percent last year, they are still far below the 15% peak that was hit during the financial crisis.
Perhaps the most troubling detail in WalletHub’s report is their finding that 13 percent of the people with credit card debt who were surveyed could not remember how they got into debt. This suggests that many consumers are still engaging in risky credit practices that were hallmarks of the pre-recession era.
The American economy is going strong, but if we’re not careful, swelling consumer credit card debt could derail the significant progress we’ve made since recovering from the recession just a few short years ago.