January Consumer Credit 7% Greater than Last Year

The Federal Reserve's most recent G-19 Consumer Credit report states that revolving credit (like credit card debt) for January increased at an annual rate of 7%. This is slightly slower than the growth rate for Q4 2007, which was 8.7%, which may mean the trend towards worsening credit card debt may be easing somewhat. Nevertheless, an increase of 7% more credit card debt than last year is twice as bad as 2005's rate of 3.1%.

The total was $947 billion, or $3,238 of credit card debt per person, or $8,094 per household (assuming an average of 2.5 persons per household, or 117 million households). This is in addition to the $1.577 trillion in non-revolving credit, like auto loans, which increased only 1% over last year. This is an indication of the tightening of availability for these kinds of loans, which could trigger a recession.

Total debt in the U.S. is $2.5 trillion, a 3% increase over last year. This is the lowest increase in the last three years, again reflecting the relative unavailability of credit.

The declining housing market has caused many families to switch from home equity loans to credit cards to finance purchases. In addition, the Bankruptcy Abuse Prevention Act of October 2005 has prevented many indebted families from filing for bankruptcy, further inflating the credit debt figures.

The availability of credit for personal consumption drives 70% of the U.S. economy. As this tightens, it will slow GDP growth, increasing the probability of recession.

What It Means to You

A softening economy coupled with rising credit card debt is a good time to reduce your financial vulnerability. Consult with your financial planner and develop ways to reduce your own credit card debt....and avoid becoming a statistic in the Federal Reserve’s G-19 report next month.

Related Articles

• Chicago Federal Reserve web site How to Budget
• Making a Plan to Reduce Credit Card Debt
• More Resources for Reducing Credit Card Debt