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Americans Continue to Spend More Than They Are Paying Off on Credit Cards

Americans paid off more than $40 billion in credit card debt during the first quarter of 2018, which is the highest amount paid off in nearly a decade, according to data compiled by the U.S. Census Bureau, TransUnion, the Federal Reserve, and WalletHub.

That’s the good news.

The bad news is that Americans ended 2017 with $92 billion in unpaid credit card debts, the highest total since 2007.

There are some who say that the $40 billion credit card payoff is an anomaly, because more debt tends to get paid off during the first quarter of the year thanks to individuals paying down debts incurred during the holiday season. As well, more employers are making personal loans to employees, who are using those funds to pay off higher-interest credit cards. So while the credit card balances may be declining, the amount of overall debt is not.

The charge-off rate on credit card balances is at 3.8%, a 6% jump from a year ago and the highest that data point has been at in six years. The average American household now has more than $8,000 in credit card debt, up about $370 from a year ago. That total is about $300 from being “unsustainable,” according to WalletHub.

From the report:

Only four times in the past three decades have we overspent so much in a year. And in each case, the charge-off rate – currently near historical lows – rose the following year. That’s true so far, as charge-offs jumped nearly 5% from Q4 2017 to Q1 2018.

So it’s not a question of whether consumers are weakening financially. It’s a matter of how long this trend will last and just how bad it will get.

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