In the aftermath of the 2008 peak of the financial crisis, Americans pulled back considerably on their debt loads, including paring down credit card balances. But those days seem to be a distant memory.
U.S. credit card debt is on a path to reach $1 trillion this year, nearing the record high of $1.02 trillion set in January 2008, right before the financial meltdown.
In comparison, outstanding student loans have already surpassed $1 trillion. But college debt does not come as a surprise to most households. Credit card debt, on the other hand, had been under control.
So what’s happening?
Well, the short answer is that banks are pushing credit cards to more consumers, as loan delinquencies decline or stabilize and more customers are see their credit scores improve.
Card issuers are raising customers’ credit limits, issuing out more cards and promoting more perks.
Low interest rates have put a big damper on the banks’ margins tied to ordinary lending. Meanwhile, tighter regulations and unpredictable financial markets has hurt trading profits.
Credit card divisions continue to benefit from low delinquency rates and are poised to see higher profits if interest rates rise.
But the flip-side to higher profits for banks is a mounting credit-card debt load for many households, and that can spell trouble for the economy down the road if consumer spending is restrained.
And there’s the immediate cost of carrying large credit card balances.
“The interest rates are still relatively high,” Mike Calhoun, president of the Center for Responsible Lending, told NPR. “Today’s average interest rate on a card with a balance is more than 13 percent. And for families who carry a balance, that works out to about $1,500 a year that they’re paying just in interest, not on paying down the balance.”