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May credit card debt surges

By Janna Herron · Bankrate.com
Tuesday, July 10, 2012
Posted: 5 pm ET

Call it the May mystery.

Credit card debt jumped by the biggest month-over-month percentage since November 2007 (the month before the official start of the Great Recession, if you're keeping count). Revolving balances increased by $8 billion in May to $870.2 billion from the month before, according to the Federal Reserve's latest stats released Monday.

That begs the question: What in the heck happened in May that made more Americans charge purchases?

Typically, economists say an uptick in credit card debt is good news because it means U.S. consumers feel more confident about borrowing money and paying it back, all around a positive sign for the economy. But this time, the jump is too big for that reasoning.

A sampling of economist statements from media reports covering these Fed stats reveals that they think it's because consumers are struggling financially. They have some valid points. Piece of evidence No. 1: Consumer confidence slid, according to an oft-cited index from the Conference Board.

Piece of evidence No. 2: lifeless job growth. The economy added on average 75,000 jobs per month from April through June, hardly a number to write Mom about.

Piece of evidence No. 3: GDP. Gross domestic product, that measure of an economy's engine strength, was lackluster in the first quarter and smarter prognosticators than me are guessing it slowed even more during the spring.

Let me add another piece of evidence to the pot. More than 400,000 long-term out-of-work Americans lost unemployment benefits by May 12 due to cuts in federal assistance, according to the National Employment Law Project, or NELP. The nonprofit advocacy for workers broke it down this way: 32,300 Americans lost jobless benefits in January and February; another 131,600 lost them in April; and 246,900 kissed them goodbye in May. More are on the way this year, NELP says.

So, it's probably a safe bet some of those people who lost jobless benefits turned to credit cards to fill in the gaps. That's certainly a bad sign.

Of course, there are other explanations for the boost in credit card debt. Maybe more people booked their summer vacations on their credit cards, or more college grads are spending on furnishing their new place. Whatever the case, keep the charging smart. Spend only what you can afford to pay off every month, or else your credit card will be the undoing of your financial security.

Did you charge more in May? If so, why?

Follow me on Twitter: @JannaHerron

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28 Comments
William Darnell
July 12, 2012 at 11:00 am

Very salient article Ms. Herron. Your leaning toward this uptick being more about struggle than prosperity is the better explanation. The comments are very telling as well, and I certainly can relate. i paid off $40,000 of credit card debt in 2010 after a 2 year nightmare of harrassment by these vicious companies. Make no mistake, these companies are not your friend despite the amusing ad campaigns on TV. I closed every card I had and since I have gone cash only have actually started to gain some savings. It surprises me that credit card debt would ever be a measure of an improving economy. That is simply a complete misnomer! If you ever are unable to pay and your Card is charged off just remember that your nightmare is just starting.Credit card companies sell these charged off balances to gutter scum junk debt buyers, and you do not want to have to deal with them. Don't buy the lie that has been heaped on us by the mega banks. The measure of an improving economy is less debt and folks coming out of slavery! To @#$% with credit card issuers and their abject greed.Your requiem is coming! Folks do anything but use credit cards!

Mealman
July 12, 2012 at 9:57 am

I charged more than I usually do. I used my credit card with one company to refinance my house loan. After spending $400 there, they told me they couln't help me. I also acquired a medical expense that wanted the money and wanted it now. I used one card that offers 7% interest to pay off my Sears card of 21% and Discover at 18%.

Dawn
July 12, 2012 at 9:53 am

I have always paid off my credit card, but not this year. And it is because of the cutbacks in my husbands job! The company said it is because of the economy and they need to remain competitive (and the stockholders are more important than the workers). so we struggle this year and hope for improvements! We are thankful for a good God and we know we can rely on him not matter what happens with the economy. He has promised to meet our needs and has been faithful!

Steve
July 12, 2012 at 9:48 am

I pay off my credit card ballances monthly and have been doing so since 2002. However my job was "aquired" by another company in 2008 and my income has dropped several times since then totaling nearly 38% of my previos companies rate. The most recent drop ($300 a month due to one of our customers going under and a change in how extra work is paid) matches the savings from selling my car to get out from the debt leaving again in the red every month. My savings are dwindling. If the morons that call the shots on compensation dont pull their heads out and recognize that the economy depends on those working benefitting from doing so, even the least of the entry level jobs, then long term everybody will lose.

Crystal
July 12, 2012 at 9:01 am

I have been using my credit cards for a few months now. My income has stayed the same but everything is going up in price except gas. I was barely making it before and now I am finding myself underwater. At this point it will only take the straw to break the camels back to send me into poverty.

Trevor
July 12, 2012 at 2:59 am

Yeah, I charged more on my credit cards.
A few thousand on my American Express (charge card).
I even opened another credit card account with Discover.
Despite charging more, every card was paid in full at the end of the month, like always.
While I may contribute to this statistic, I don't contribute to holding the debt.
While I understand people use credit cards as clutches, they need to be more responsible with their spending.
Being a 21 year old with better credit than the large majority of the nation just doesn't seem right.

Simply Malana
July 12, 2012 at 1:28 am

Many people may be charging their medical expenses and mortgages and such to help make ends meet. A lot of people feel uncomfortable applying for government assistance during these rough times so they may charge their groceries. There are many hurting families out there trying to survive day by day. This is no longer a paycheck to paycheck situation. There is no more paycheck. Their survival has to be decided daily so they do what they gotta do. the last thing on their mind is not running up a credit card bill when the alternative is lose the house or don't eat. This is happening to hard working people who would have never thought they would be in this situation because they bought into the "Dream"...

Guillermo
July 12, 2012 at 12:11 am

I increased my credit card debt in May and June to over $12,000 because I had just bought a house and had many surprise expenses. I am paying it off fast now.

john
July 11, 2012 at 11:38 pm

Have been of work so long needed to have a boost to make me feel alive and not under water so far. Thanks Oboma for cutting benifits and jobs.

Chrystal
July 10, 2012 at 10:11 pm

I did charge more in May, but that was not because I was struggling! Which is a good thing. I'd actually been approved for my first credit card after five years of not being able to have one because my husband stole my cards and charged a phenomenal amount without my knowledge. Now I am husband less and re-building my credit. Granted, it's a small balance card, but it is my ticket to financial freedom.