Consumers Pile Up Second Quarter Credit Card Debt

Last week's consumer credit report from the Federal Reserve showed a drop in consumer credit card debt in July. But numbers buried deep in the report showed July's slowdown followed a dramatic plastic binge in the second quarter.

In its analysis of data for the second quarter of 2011, CardHub.com reports consumers ran up a staggering $18.4 billion in credit card debt in the April through June period. To give you an idea of how significant that is, the July 2011 total is 66 percent more than consumers accumulated in the same quarter in 2010 and 368 percent more relative to the second quarter of 2009.

Based on the results of this study, CardHub.com’s latest projection is that consumers will end 2011 with around $54 billion more in credit card debt.

The study focused on consumer debt data from the Federal Reserve’s G19 report in conjunction with quarterly charge off data to determine how much consumer debt actually increased when you consider the amount of bad debt written off the books.

Worrisome

Like the first quarter of 2010, consumers ended the first quarter of 2011 with a significant net decrease in credit card debt. However, in subsequent quarters they proceeded to wipe out any reduction. What’s worrisome about 2011, according to the financial website, is that they seem to be doing it at a faster rate than ever.

Last year ended with a net increase in debt of $9.1 billion, which practically erased the net decrease of $10.0 billion in 2009. In contrast, 2011’s projected $54 billion increase in debt puts consumers on a very alarming trajectory, the company said.

Some might see the renewed credit card spending as a sign of confidence, but consumer confidence surveys this year have actually shown a steady decline in confidence. What appears more likely, according to some economists, is that consumers are using plastic to meet basic expenses, and that much of the increase in credit card spending could be purchases of more expensive gasoline.

The Fed's report last week suggests the alarming trend has been reversed, at least for one month. In July non-revolving credit, which includes auto loans and loans for educational purposes jumped $15.4 billion. However, that was offset by a $3.44 billion decline in credit card spending.