Americans are Racking Up Debt Again

Thursday, December 15th, 2011

Americans are spending more on their credit cards again, even prior to the official start of the holiday shopping season. While some believe that this is an indication of growing consumer confidence in the state of the economy, others warn that consumers could be turning to their credit cards because of low wages and high inflation.

Last month Americans ratcheted up their spending by borrowing from banks via credit cards. Additionally, they took out more loans to pay for post-secondary education and to purchase automobiles. According to data released by the Federal Reserve, the overall amount of consumer borrowing saw a 7.6 billion dollar surge. The borrowing increases across September and October were an abrupt about-face from the 16-month low seen in August. The numbers from the Federal Reserve report on borrowing includes credit cards, auto loans and student loans but does not account for real estate-related loans such as home equity loans or mortgages.

The L.A. Times reported that consumers amassed some 16.8 billion dollars in credit card debt throughout the third quarter, a figure that is 154% greater than at the same point last year. Additionally, the Atlanta-based payment processing company First Data revealed that Americans upped their credit card spending over the first three quarters of this year. Experts predict that the end of 2011 will find consumers shouldering approximately 64 billion dollars more of credit card debt than at the start of the year.

“Credit is back in favor,” said Silvio Tavares, the senior vice president at First Data. “Consumers have spent the last couple of years de-leveraging and reducing credit card use, but during the past month — and since April [2011] — they’ve been using their credit cards more and are starting to return to pre-recession buying habits,” as reported by The Chicago Tribune.

However many economists are speculating that any gains in spending are merely temporary. This is because inflation is out-pacing wages. Some experts warn that the increase in borrowing may be a result of the meager earnings of workers.

“Many Americans had to break out the plastic in the past couple of months since disposable income, adjusted for inflation, was in negative territory for each month in the third quarter,” stated Chris Christopher, a senior economist at IHS Global Insight, according to The Washington Post.

Some economists and financial experts also harbor concerns that the current debt crisis in Europe will lead to a recession overseas. This would have a negative impact upon U.S. growth.

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