Credit cards tied to the Prime Interest rate will likely see another increase before the end of March. There will likely be two additional increases later this year. The issue is not in the rate increase itself, but in the many other factors affecting the consumer and their issuing banks.
- While economic conditions remain generally favorable, it’s worth taking a look at some of the more problematic aspects of consumer debt.
- While the U.S. economy may be doing well, there is evidence credit card users are experiencing some difficulties that may be exacerbated by higher rates.
We’ve run similar numbers for more than a year, but they bear repeating. Rapid growth brings higher risk.
- Total outstanding revolving debt (which is mostly made up of credit cards) has been steadily increasing since it bottomed out around 2013. As of December 2017, Americans collectively owe $1.027 trillion. The average indebted household has outstanding card balances over $15,000. If interest rates grow alongside debt, that means interest charges will grow, too.
- Credit card debt is only a problem if it becomes unaffordable. Unfortunately, there are signs pointing to that being the case.
Amen.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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