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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
Catherine
July 12, 2012 at 5:15 pm

One of the reasons I closed my brick and mortar retail store....Credit card fees...the regular fees every month are bad enough, but the cash back rewards were more than I could bear with my already small profit margin and overhead. Giving customers a discount to use cash doesn't work for the merchant any better. Credit card companies don't allow merchants to charge extra for taking a rewards card and raising prices to compensate puts us out of the price competition. So remember when you are getting your free money it's actually coming from someone who's struggling to keep their business and can't afford it, yet have no choice. Have fun with that. Talk about handouts. And, did you also know that it is illegal to tell our customers where the cash back is coming from. Of course the bank wants you to think they're giving you something. See who the laws work for? Thank's Discover, for offering deals ON ME. I'm so happy I was able to help people take trips to Las Vegas. I haven't had a vacation in years. Maybe I should start using credit cards and have someone else pay for my trip to Italy.

Katie
July 12, 2012 at 4:54 pm

We are a small business and while we do not use credit cards period, a large number of our customers do. I have to agree with Shell Bush. As a business we pay hundreds of dollars to the credit card companies each month just for the privilege of accepting credit cards. The highest rate we pay is for rewards cards. So if you think you are getting something for nothing, think again...the merchant is paying for your rewards, and in turn charging you more for the product to offset the fees. Why do you think debit cards are so wonderful. The card companies rake in the cash & the merchants have to wait 2or more days for the funds to be deposited in their account. When it comes to banking and credit cards NOTHING is free.

Kay
July 12, 2012 at 4:02 pm

We have always used our credit cards, always paid the balance, always took pride in our good credit score, but all it took was for both of us to loose our jobs and we had no choice but to rely on credit cards to survive. Once the credit card company got wind that our status changed they started lowing our available credit, starting raising our interest rates.This now made us look worst off then we were because the credit card company just made our debit ratio raise which made us look like a bad credit risk. Once one credit card report it the rest of your credit card companys do the same. We used our 401K, our saving and emergency to pay our credit card bills, but when the money runs out, it runs out. We asked for help and each time we asked they cut us some more.Four years later we had no choise but to claim bankruptcy all because our credit card company helped push us into this situation. If they would of left us alone and not cut our credit allowed and let us make our payments we never would have had to go that route. Try putting your kids through college with no credit, it doesn't work. Thank you Mr.Credit Card I hope you enjoyed all that interest you made.

Karen
July 12, 2012 at 2:33 pm

I know for a fact that a lot of people are using their credit cards just to live from day to day and hoping to find a job soon in order to pay back the debt. Personally I know this because my daughter has been doing this for six months now, just paying the minimum every month which is not the thing to do...so therefore I do not agree with your analogy.

alleneagan@aol.com
July 12, 2012 at 2:08 pm

funny....so much credit card debt, and you found the two people who never carry a balance??? How curious....

Lynn
July 12, 2012 at 1:51 pm

We got our tax return and refinanced our house in the same time period (a few months ago). We took out some extra money from our refi since the interest rates are so low. We made some large purchases on our credit card (to gain reward points)and then paid off the balance.

Mike
July 12, 2012 at 11:54 am

I no longer use credit cards. If I cannot pay cash, I do not need it

Shell Bush
July 12, 2012 at 11:25 am

The credit card companies aren't giving you free money; that money they return to you is taken from the merchant who sold you the goods in the first place. The CC company is discounting someone else's product for you.

And how do you think the merchants recoup their losses?

By raising prices to compensate.

Brad
July 12, 2012 at 11:15 am

My wife and I used the Discover card to pay for our flight to Las Vegas. Discover is offering cash back for purchases, so I took advandtage of the free money. We paid off the balance on the Discover Card the other day. We do not carry balances on our credit cards.

Eric
July 12, 2012 at 11:03 am

I use my credit card more (Discover) because they keep offering larger cashback premiums in selected categories. I still pay them off before accruing any interest charges. If they are going to give me free money, I'm taking it.