The recession that began in 2008 continues to have an effect on many Americans as we enter 2014. After all, the unemployment rate is still high, home values haven’t fully recovered, and interest rates remain low.
However, there are some indications that our economy is on the mend. For example, the stock market had a good year in 2013 and home sales picked up quite a bit. Curiously, another good sign is that spending on credit cards has increased. In fact, in October credit card debt hit a three-year high.
If you’re not quite sure what this increase in consumer debt levels means, read on for more details.
What the numbers tell us
First, let’s review the data about recent credit use in the United States: according to the Wall Street Journal, which reported on information issued by the Federal Reserve, revolving debt ticked up by $4.33 billion in October 2013. This caused total revolving debt in use to rise to $856.82 billion, which is the highest it’s been in three years.
To be clear, revolving debt is largely made up of credit card debt. This is the kind of credit that is used and paid off then used again, as opposed to installment debt, which is paid off in monthly increments (like a car loan).
Speaking of installment loans, they also grew by $13.85 billion as of October. This means that, between revolving and installment loans, total consumer credit jumped by $18.19 billion. This figure doesn’t include home loans, but it is still higher than economists expected.
Good news, bad news
So how can a growth in consumer debt – particularly credit card debt – be interpreted? On the one hand, an increase in credit card debt is a sign that people are becoming more comfortable with spending because they’re confident about the future.
This makes sense if you think about the reason that a lot of people spend more on their credit cards than they can afford to: they think they’ll have more money in the coming months or years to pay off the balance. Of course, they think they’ll have more money because of they anticipate that they’ll get a better job or a raise, an expectation people didn’t have during the recession. In this way, increased credit card debt is yet another sign that bad economic times are behind us.
On the other hand, increasing debt levels could mean that we’re returning to the free-spending ways that led us into the recession in the first place. Consumer spending drives our economy, but when people are spending money they don’t have, it’s hard to get too excited.
Don’t become a statistic
It’s impossible to predict what kinds of twists and turns the economy will take in 2014 and beyond, but you can take steps to be sure that your personal finances stay in check.
First and foremost, it’s important to avoid becoming one of the people that pushed credit card debt to a three-year high in October. Getting and staying credit card debt free is one of the best things you can do for your finances – you’ll not only avoid paying high interest charges, but you’ll improve your credit score, too. To achieve this goal, here are a few tips:
- Track your spending carefully to be sure that you’re not charging more than you can pay off in one month
- Pay more than the minimums – even just a couple dollars more than the minimum payment can make a dent in your debt
- Consider transferring your balance to a 0% card; this could save you a ton of money in interest, as long as you pay off the card before the interest-free period is up
The bottom line: consumer spending is on the rise, as evidenced by the upsurge in credit card debt in October 2013. While this benefits the larger economy, don’t take this news too far and feel it’s your patriotic duty to overspend. Be sure to keep your personal finances in order by paying off your credit card as soon as possible – and if you’re already debt-free, do everything you can to stay that way!