While Americans tacked on $36 billion in credit card debt during the second quarter of 2024, there could be a positive sign for the economy.
In a new report from WalletHub, overall credit card debt reached $1.28 trillion. But the $36 billion increase was 17 percent less than last year. Based on those numbers, each household added an average of $10,680 in credit card debt.
“We continue to be a consumption-based economy and willing to take on debt,” Kevin Thompson, a finance expert and founder and CEO of 9i Capital Group, told Newsweek. “Consumers are not paying off their credit cards and subsequently paying higher fees due to rolling over balances.”
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Thompson said much of the credit card debt has slowly increased quarter over quarter, likely because of high interest rates. And with rate cuts predicted in the near future, Americans will likely experience a “small reprieve,” he said.
“The Fed knows that they cannot afford to choke off the economy too much, restricting borrowing and leaving households with higher borrowing cost,” Thompson said.
While there is positive news for the economy, Drew Powers, the founder of Illinois-based Powers Financial Group, said the added $36 billion is still a “scary increase.”
“Interest charged on revolving accounts is higher than it has been in recent memory, and this compounding interest will devastate a financial plan,” Powers told Newsweek.
Americans are still struggling to cope with COVID-era inflation in addition to price gouging across sectors, Powers said.
Many are more self-aware when it comes to prices, so they are working to reduce their credit card debt, added Alex Beene, a financial literacy instructor for the University of Tennessee at Martin.
“Many Americans are simply ‘tapped out’ financially due to higher prices, and it’s a good sign they’re taking note of this and relying on consumer debt less,” Beene told Newsweek, adding that there are still looming economic issues.
Higher consumer spending, which can boost an economy, tends to correlate with lower saving rates. So what is good for the individual might not be best for the larger economy, experts said.
“At the same point, the negative takeaway some economists and investors may have is less personal consumer debt equates to less spending,” Beene said. “In order for your economy to continue to grow, you have to have spending consumers, even if those consumers are using debt to make those purchases.”
