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American credit card debt just broke the trillion dollar level. Taking on debt, “ bad” debt, credit cards , auto loans and similar, is a like attending a raucous party , taking in too much alcohol , etc.
The aftermath , paying off high interest loans, is like the worst hangover, ever. It can take decades to recover from it.
Often, too much alcohol can kill you, quickly or long term, * alas , debt can kill you, quickly, ** or long term , *financially. Foreclosure, and often bankruptcy are far too common issues.
* John Bonham , the drummer for Led Zeppelin, died after having 48 vodka drinks in 24 hours.
** A good friend ended up in the emergency room and nearly died after defaulting on a loan from a , uh, * sub- prime” lender.
We each have only one credit card and we don’t carry any credit card debt. I pay mine off every week and my wife once a month.
I learned the hard way last weekend the downside to having only one card. We bought new iPhones at an Apple store. For some reason, they did mini charges separately (phone, Apple Care and accessories) and that triggered suspicion from my credit card company. The cc company didn’t even send a text verifying if this was legitimate. Went out to dinner the next night and my cc was denied. Never, ever has this happened in the 40 years I’ve had the same card. I got the problem resolved but this past Monday, I signed up for another cc.
we have had the same Credit Card for over 30 years…..we do not chase point or rewards…we pay off every month……I guess we are living within our means but we are happy and have no debt and buy what we need and want without question also eat out often and tip well….older Boomers will servive
From WSJ.com
Things Are Quiet in Consumer Credit. Too Quiet. – WSJ
“On an inflation-adjusted basis, total household debt remains more than a trillion dollars below the record high hit at the end of 2008, according to figures calculated by WalletHub. With population growth factored in, it is even relatively lower. Credit-card debt for the average household, for example, is almost 13% off its peak level.”
While I’m certainly not a fan of consumer debt – the picture isn’t quite as dire as the absolute cc debt level seems.
The article is behind a pay wall. What does it mean by “too quiet”? Surely less debt should be a cause for celebration.
It should be a pretty good time to be lending money to people. Interest rates on credit cards have been at the highest levels since at least the 1990s, while the risk of card lending is subsiding. For the first time since 2021, the rate at which new delinquencies were forming actually declined in the third quarter from the prior quarter, according to the Federal Reserve Bank of New York. The four-quarter moving sum of the percentage of balances becoming 30-plus-days past due fell 0.26 percentage point from the second quarter to the third, to 8.79%.
Yet there is a missing ingredient, and that is borrowers. By many measures, Americans are hardly gorging on debt right now, as they are often thought to be doing. Moody’s Ratings pointed out that household debt in the third quarter grew slower than nominal gross-domestic product, at 3.8% debt growth from a year earlier versus 4.9% nominal GDP growth.
https://www.wsj.com/economy/consumers/things-are-quiet-in-consumer-credit-too-quiet-42f22610?mod=livecoverage_web
Again, what is wrong with that?
Here’s a mathematical answer (not a philosophical one).
Debt is also an asset (to the bank or person who holds it). So part of the growth of the overall economy includes the growth of debt.
If debt slows down to much it will encourage the economy to contract. (not just as an asset, but the effect it has on companies seeing reduced demand)
Eventually it leads to lower stock prices and more unemployment. That’s the risk.
What the right debt to GDP ratio? That’s something they argue about.
That may be good math but it strikes me as terrible philosophy. But then, I don’t think growth at any cost is desirable, which is why I am not upset by the decline in the birth rate.
For those of us who aren’t bankers – nothing. 🙂
Thank you! Guess there’s a good reason I don’t read the WSJ. (With apologies to Jonathan.)
At a former employer almost everyone said they were “risk-adverse” so they kept their retirement funds in CD’s while keeping their mortgages.
I said I we were “debt-adverse”. Our retirement money is in the S&P500.
We paid off our mortgage early. And don’t have one now. We pay off our credit card every month.
We’ve both always felt that debt hugely limits our options.
As with EVERY financial financial decision …
YMMV. You have to do what makes YOU feel comfortable.
Another even worse source of usury is payday loan companies.
I realize how fortunate I am to have avoided paying a bunch of interest on cards or vehicles for a very long time. I once purchased a vehicle with a five-year, zero interest loan. I guess the folks at Saturn were desperate to increase market share. I set up automatic drafts and forgot about it until I received the title in the mail. I cannot remember how long ago it was that I carried a balance on a credit card – – – and that was due to the mistake of forgetting to pay it one particular month.
We just bought our second new vehicle in two years with cash. It was disappointing however to discover that with the lack of Toyota inventory on the lots (top of the line 4WD Tacoma and new for this year Crown Signia) since COVID the dealers are not willing to give a discount for cash purchases.
Some will question the financial sense of buying new, especially the most expensively equipped level vehicles. However these are Toyotas. We are driving less than when we are working and as we are in our mid sixties these are probably the last non-shared vehicles we will own (these will most likely be replaced with one more shared vehicle). The fact that these vehicles will be reliable will reduce stress of repairs which has its own value.
These vehicles also have all of the safety features so they will make us safer drivers as well.
Previously we always bought low cost vehicles (the Tacoma this one replaced cost 13K and I owned it for 18 years).
It’s time to treat ourselves in retirement because we can afford it.
We paid cash for two new cars in 2023. I made it clear to the salesman and manager that I was not interested in a car loan. Despite all this, they wisked me into the finance and insurance room for a good “talking to” by a 20 something year old. At least I wasn’t subjected to waterboarding.
Similar situation. I forgot about our credit card bill and ended up paying interest twice in our life. We buy new Honda in cash. My current Honda Civic is 2012 with 257,000 miles and has no problems
The number for total credit card debt includes many balances that will be paid in full every month. The banks know how much is outstanding, but they can’t predict what will be paid when the bills are sent out.
Many well off people charge everything they can to collect points and bonuses. A lot of this loot comes from poor people paying 30% interest. It’s an interesting system, to say the least.
Maybe a bit of a drastic characterization but it isn’t “healthy” mentally to have that type of yoke around your neck. I wouldn’t even consider retiring with any credit card debt. It is somewhat inconceivable to me that lenders can legally charge the rates they are quoting for unpaid credit bills. I recently opened a new store credit card for a purchase of some furniture (I could have paid cash or with another card immediately) but I got a $100 discount and 12 months no interest to pay after the furniture is delivered. When reading the disclosure on the application, I saw that the rate charged if not paid off within the “interest free” period was 33%! Really?? How is that even legal? That sounds worse than dealing with those “sub prime” lenders you mentioned.
My two credit cards (one is backup in case/when the main one is compromised and I have to wait for the new one) are on Autopay. I always review the charges, but this time I looked at the interest rate for carrying a balance: 29.74%! I showed it to the grandson, just as a warning. Crazy!
That is daylight robbery. Also usury. Lending/borrowing money at interest is not allowed for Muslims. Used not to be allowed for Christians, which is why Jews became money lenders in medieval Europe, and therefore unpopular.
The credit card companies are making it incredibly easy to run up debt. Discover and other cards are giving people 18 months interest free. Seems like a big balance nightmare for a lot of consumers.
We love our candy and companies know just how to play to that desire. More so than ever before, thanks to our fast digital world and a mild intrusion of your privacy and habits. We seem to have forgotten how to say, “No!”, and walk away from the burden of non-essential debt.
I suggest that it’s been very easy to rack up enormous consumer debt throughout our lifetimes. The failure is on the side of the applicant that cannot or chooses not to do the math and make better decisions before taking on the debt. We’ve personally been there, done that. Thankful to have had a harsh awakening in our very early days.
We are living in a delusional world of, “You can have it all.” Retail therapy? Keeping up with the Joneses (Kardashians)? Student loan debt is a prime example of this mess. I really do wonder what % of current student loan holders are 90 days or more delinquent on their other credit obligations. No worries, the debt will supposedly go away, someday, maybe. Kick the can down the road and keep spending. Our own government sets a horrible example in this matter for its citizens. If you don’t believe $35T in national debt ($37T coming to a country near you soon) doesn’t trickle down to a personal finance subject matter today, not just for future generations, please reconsider.
You might enjoy the documentary, “Buy Now” (corrected) currently showing on Netflix and perhaps elsewhere, which covers this subject and the downstream realities of this excess.
This is one good thing my parents taught me: if you can’t afford to pay your credit card off every month, you are spending too much. Put it away. Chris
And kids whose parents could never qualify for a credit card need high school classes in personal money management. When my daughter got to college, she had at least one new friend who literally thought her new credit card was free money, as did the young woman’s own mother. Guess who eventually had to pay off her family’s household debt? The family’s first college graduate 🙁. Sad but true.