• Credit Crisis Insights into the Credit Card Debt

    When credit cards first burst out on the scene, many people were speculative of the benefits and then as cards became more commonplace the consumer began a love hate relationship with the credit card. Consumers loved the ‘swipe now’ bit but hated the ‘pay later’ bit. More often than not the hate was due to high, borderline exorbitant interest rates credit cards carried. As a result a credit debt was born and this debt grew and grew till we had the credit crisis of 2008.

    What we are witnessing today is something akin 2008 and with each passing day and each dollar being added onto the mountain of debt that already exists, it becomes clear that man has a hard time learning from the past.

    The global economy as of today is showing extreme volatility. With a slowdown of the economy in China coupled with ambiguity over the timing and frequency of hikes in interest rates proposed by the US Federal Reserve, the statistics surrounding credit card debt is important as it reflects consumer sentiment and can be used as precursor to detect possible constrictions in the credit card market.

    Credit card debt paints a worrying picture as of 2015, a survey carried out by Card Hub showed that aggregate credit card debt had surpassed their prediction of $900 Billion and stood at $917.7 Billion. This comes after the fact that the start of 2015 saw people use financial windfalls such as tax returns to pay off chunks of their credit debt. Nearly $35 billion in credit card debt was cleared in the first three months of 2015 but the year ended with an increase of $71 Billion in credit card debt.

    Figures for 2015: the credit card debt saw a clearance of $35 Billion in the first three months of the year but the year ended at $71 Billion in increase in debt. The actual figure stood at $70,958,274,558 and was an increase of almost 24% of what was incurred in 2014. The debt of 2015 had increased by 95% since 2012. The last quarter of 2015 saw the year carrying the biggest chunk of debt with $52.4 Billion coming in Q4, 2015 alone. This debt incurred in the last 3 months of 2015 was almost equal to the entire debt of 2014. In fact 7 out of the last 10 quarters have witnessed a year over year increase in debt and the upward trend of debt is only being further fuelled by bad spending habits.

    If the trend continues, debts will go over a precipice with many people being unable to pay off debts and turning into defaulters. This in turn will limit the available credit to people. Credit card debt is fast approaching a tipping point wherein anyone who has a debt can be pushed past the point of no return even with the slightest charge being swiped onto their card.

    Cardholders have to make a conscious effort to reign in their debts by creating and sticking to budgets, increasing their income or generating additional income, starting an emergency fund and paying off the costliest debts first

     

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