Consumers Taking On More Credit Card Debt

CardHub.com, an online credit card resource, reports consumers piled on $16.8 billion in credit card debt in the third quarter of 2011, up 154 percent from the same quarter last year.

The news comes on the heels of a report by First Data that credit card spending in the U.S. rose in the first three quarters of the year. The Great Recession may have promoted many consumers to put away their plastic for a while, but they are apparently spending again, with a vengeance.

Based on the results of its study, CardHub.com’s latest projection is that consumers will end 2011 with roughly $64 billion more in credit card debt than they began it with.

The company arrived at its conclusions by analyzing 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.

Unprecedented rate

While it is common for consumers to end the first quarter of each year with a significant net decrease in credit card debt and subsequently wipe out this reduction throughout the rest of the year, the speed at which consumers are garnering new debt in 2011 is unprecedented, the company said. More specifically, this is the first time in the last two years that a first quarter paydown has been completely eradicated by the end of the third quarter.

While economists have said a return of consumer spending is necessary to help the economy fully recover, unbridled credit card spending is probably not what they envisioned. If the recent trend of rising credit card debt in the fourth quarter continues – and data from Black Friday and Cyber Monday shopping suggests it will – the report concludes that consumers could be headed down a dangerous path.

“Consumer spending is gaining momentum,” said Card Hub CEO Odysseas Papadimitriou. “While people going out and buying things is good for the economy, over-leveraging is not.”

The First Data report earlier this week found that Black Friday credit card purchases were up 7.4 percent over last year, while debt card purchases rose only 3.4 percent. In other words, consumers were spending money they didn't have at more than twice the rate they spent their own money.