credit debt risingHabits are hard to break: Just when you think you're firmly in control, you backslide again. Such may be the case with Americans debt addiction.

According to CardHub.com's, Q2 2011 Credit Card Debt Study, U.S. consumers accumulated a staggering $18.4 billion in credit card debt in the second quarter -- 66% more than they accumulated in the same quarter a year ago, and 368% more than in the second quarter of 2009. Based on the study, Americans will end 2011 with around $54 billion more in credit card debt than they began the year with.

"A debt increase of $18.4 billion during a single quarter is mind boggling, especially when you consider that this increase is 368% higher than what we witnessed in the same quarter two years ago," says Odysseas Papadimitriou, CEO of CardHub.com.com. 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.

The upside is that consumers ended the first quarter of this year with a significant net decrease in credit card debt -- as they had in the first quarter of 2010. However, in subsequent quarters last year, they proceeded to wipe out that reduction.

"There is no doubt in my mind that a lot of consumers are reverting back to pre-recession habits and that this is why we are witnessing such a dramatic increase in credit card debt (net of charge-offs). Anyone whose income was tied to the housing boom -- either directly or indirectly -- should realize that those years aren't coming back unless we find ourselves in another bubble," says Papadimitriou. Also troubling, say the folks at CardHub.com, is that in 2011, people seem to be spending up their debt 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 billion in 2009. In contrast, 2011's projected $54 billion increase in debt is hair raising.

Overleveraging Again


To be fair, he says, part of the increase is also driven by consumers who lived within their means before the Great Recession, did not see income reductions when the housing bubble burst, and are now increasing spending because of growing optimism about the economy. That's a healthy sign. "Without being able to quantify this, my assessment is that the majority of the increase is attributed to the failure of many to realize that their disposable incomes will not be going back to "bubble levels" anytime soon," says Papadimitriou.

What does all this mean for our seesawing economy? "Our economy is in this state because a significant number of consumers wanted to overleverage themselves and regulators allowed this to take place, primarily through the housing bubble. While a trend that points to consumers reverting back to pre-recession debt levels could be construed as a sign that things are returning to 'normal', I believe it is worrisome indicator of a return to overleverage," says Papadimitriiou.

He says there are three clear takeaways from the study.

1. Without a doubt, people are much more confident about the nation's financial outlook and that more people are finding jobs (even if it is part-time).

2. Consumers are recognizing that credit cards are now safer vehicles for revolving debt, thanks to the new credit card law, which prevents issuers from arbitrarily changing a consumer's interest rate on an existing balance.

3. Some consumers simply have not come to terms with the fact that they shouldn't return to their pre-recession spending habits, no matter how much the economy recovers. Consumers need to think strategically: Maintain an excellent credit standing, ensure that you have the income to comfortably pay off any new debt, and buy items on credit only when you will be better off financially by getting them now as opposed to buying them later with cash -- for example, buying a home instead of spending the same amount of money in rent,or buying equipment for your small business that will increase revenue.

Instead of increasing your overall debt load, focus on lowering the cost of your existing debt, he says. For example, there are some amazing 0% balance-transfer credit card offers available now that, in combination with the new credit card law, can help consumers lower the cost of their existing debt without having to worry about "gotcha" practices, says Papadimitriou.

Mostly, he says, we should learn from our mistakes.

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221 Comments

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Sky Fairlane

Regarding unemployment and debt:

If you’re unemployed or under employed, chances are you are not going to be able to pay your way. People are

getting arrested for their unpaid debts in six states. And collection agencies are behind it. A petition has been

started on moveon.org to prevent the return of debtor’s prison in the USA. Once enough signatures are obtained,

it will go to the US Congress and President Obama.

To sign the petition go to

http://signon.org/sign/outlaw-the-return-of

February 13 2012 at 2:13 PM Report abuse +1 rate up rate down Reply
Somebody

Banks create money when we borrow. This new money inflates the money supply and makes the economy good. But it sets us up for a deflationary crash that happens when the pay back time arrives. Google for "HOW DO BANKS CREATE MONEY" to understand how the debt based monetary system works.

September 28 2011 at 1:33 AM Report abuse rate up rate down Reply
Betsy Hayes

Once you have a detailed analysis of your spending versus income, then you will be better equipped to create a budget plan. http://bit.ly/pod6EL

September 17 2011 at 1:53 AM Report abuse rate up rate down Reply
scottee

this is just stupid! why does our government reward spending and debt via the tax code but punish savings and investment by taxing it and letting The Fed keep interest rates low? let the free market decide interest rates...and stop The Fed from printing and diluting our dollar....and give us a minimal simple fair tax that everyone pays.

September 14 2011 at 1:28 PM Report abuse rate up rate down Reply
Hooper823

They are borrowing not like it's 2006 and times are good.. this time they are borrowing because they need to eat and pay bills and they are at the end of the line. If you think it's bad now, just wait because it's going to get much much worse over the next few years. We will have bread lines like 1929.

September 14 2011 at 6:23 AM Report abuse rate up rate down Reply
djdancing49

Party like its 2006? Maybe thhey figured out "their" bailout is run up the credit card and not pay it back. Things that

make u go Hmmmmmmmmm. Flaming Dollar

September 13 2011 at 5:27 PM Report abuse rate up rate down Reply
Adele

Click here: Dominionism: Michele Bachmann and Rick Perry’s Dangerous Religious Bond - The Daily Beast

Is it time to stop giggling and start worrying? I think so.
The idea that we could elect our own Taliban frightens me.
On the other hand, maybe we could make a million dollars investing in bedsheets.

September 13 2011 at 5:26 PM Report abuse -2 rate up rate down Reply
1 reply to Adele's comment
savemycountry911

A little religion would do a lot of good.

September 13 2011 at 8:55 PM Report abuse +2 rate up rate down Reply
tropicsilk

Check out "Debtors prison Blues;
http://youtu.be/ay3EvM1Ab7U

September 13 2011 at 4:31 PM Report abuse rate up rate down Reply
Dr. Jason Cabler

i think the last sentence of the article was the most important- "Mostly, he says, we should learn from our mistakes"

The fact that credit card debt is back higher than pre-recession levels is very disturbing to me. I don't think it's because people are getting comfortable with their income and are willing to use debt again. I think its because people are getting more desperate. Jobs and income are still hard to come by and people are using credit to live. I am very concerned that this is a trend that can't continue because it's unsustainable.

In my "Celebrating Financial Freedom" course I teach people that you can live with debt for awhile, but ultimately it will come up and bite you in the butt. It's a bondage that keeps you constantly in a hole and ultimately limits your freedom to live your life the way you want to live it. We have to come to the realization as a country that we have to stop using credit if we want to be free. Just because the documents our country was founded upon says we're free doesn't mean we can't be in bondage.

September 13 2011 at 4:18 PM Report abuse +2 rate up rate down Reply
2 replies to Dr. Jason Cabler's comment
Adele

People do not learn from "their" mistakes.
It is so much easier to blame someone else for their own shotrcomings and problems they made for themselves.
That is the American way. Whine, whine. Gimme... Gimme.

September 13 2011 at 5:45 PM Report abuse -2 rate up rate down Reply
1 reply to Adele's comment
Barbara

I think the Dr comments are smarter than yours!!!

September 13 2011 at 9:57 PM Report abuse +2 rate up rate down
Barbara

You are a smart person. Don't waste your time on these web sites. Most people hear just talk and cuss, no real problem solving here

September 13 2011 at 10:08 PM Report abuse +1 rate up rate down Reply
piknplundr

I don't know for sure but I think credit card has sky rocketed because people have no choice but to use their credit cards just to hang on and hope things get better. I find myself using my credit cards more because everything I have is up for sale but nothing is selling. I am just not convinced that folks are running up credit card debt because they think things are better and are buying things they don't need. If this were true, seems like retail sails would be up a lot more and unemployment would come down.

September 13 2011 at 3:05 PM Report abuse +2 rate up rate down Reply
1 reply to piknplundr's comment
Joyce

I agree. The article claims it's because people have more confidence in the economy, but I believe a major part of ti is that people have no choice. Those without jobs, or working part time are using their credit cards to get by.

September 13 2011 at 3:27 PM Report abuse +3 rate up rate down Reply