It appears that consumers have short memories.
After the 2008 financial crisis, American’s tightened their belts, reigning in spending, buying homes only if they could afford the mortgage payments and putting more cash into their rainy day funds.
Well, eight years later the debt flood gates have re-opened. According to a recent article in the Wall Street Journal, U.S. credit card balances are on pace to hit $1 trillion this year. Consumers are feeling more comfortable carrying debt, and the banks are more than happy to oblige with boatloads of plastic.
It’s not only credit card debt that’s piling up. The article notes that car shoppers are showing little hesitation taking on the payments necessary to get them into the latest fully loaded luxury model. In fact, auto-loan balances topped a record $1 trillion in the first three months of the year, according to a report from credit bureau Experian.
Even consumers considered less creditworthy are being targeted by lenders. As the article states, subprime borrowers received more than 10.5 million credit cards in 2015, a 25% jump from 2014. To protect themselves from cardholders who can’t pay their bills, some lenders require that subprime borrowers deposit funds equal to the card’s spending limits.
There are warning signs that the flood of credit cards could backfire. Throughout the industry, the number of borrowers defaulting on payments has increased in each of the first four months of the year.
Just because lenders are feeling comfortable issuing more credit cards and people are using them to going on buying sprees doesn’t mean you should join the herd. As the saying goes, “All good things must come to an end.” It always has and you can be certain it always will.
You don’t want to be stuck with a huge credit card balance if you lose your job, have a costly health crisis or some other emergency. So it might be wise to buck the trend. Establish a budget, and stick to it. Use cash when you buy things. If you do use a credit card, pay off the balance at the end of the month.
And don’t forget to save for your future. Fund your IRA. Put money away for your children’s education. Establish a bank account and put money in there for the vacation you’ve always wanted to take. We’re not suggesting you deprive yourself of life’s simple pleasures. What fun would that be? Just be careful not to overdo it so you wind up owing more than you can reasonably pay back.