Credit Card Balances Rise: Are Consumers Stretched?

By Daniel Indiviglio

There's no doubt about it: American consumers beginning to let their credit card debt grow again. For just the second time in 31 months, revolving credit rose in March, according to the Federal Reserve. Non-revolving debt also increased during the month. That brought up total consumer credit outstanding for the sixth straight month. Americans may finally be done paying down their debt.

Here's a chart showing how consumer credit has shifted since the recession began in December 2007:

consumer credit 2011-03.png

You can see that the decline in revolving debt had been slowing for some time. In December 2010, it ticked up for the first time since August 2008. That was easily blamed on holiday shopping, once balances began declining again in the two months that followed. But there's no similar explanation for credit card debt rising again in March. It was up 2.9% on an annualized basis, which is about $2 billion compared to February.

Non-revolving credit also rose in March, slightly faster at 3.0%. March marks eight months straight that non-revolving balances have risen.

It's hard to know for sure why consumers have decided to begin increasing their credit card debt again. A major effort to pay down debt had occurred over the prior two-plus years. One potential explanation is that rising gas prices stretched finances, forcing some people to run a credit card balance in March. If gas prices decline, and revolving credit falls with it, then we have our answer. Alternatively, this increase in card balances could simply mark a turning point where consumers are again eager to spend on credit.

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