$54 Billion Closer to Our Next Financial Crisis

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After a couple years of austerity, we’re again racking up credit card debt at an alarming clip.

According to a new study from CardHub.com, we’re on track to increase our collective credit card debt by $54 billion in 2011. We added only $9 billion in new credit card debt in 2010, and actually reduced our credit card debt in 2009 — so this is a significant reversal. All told, Americans now have roughly $772 billion in outstanding credit card balances.

“For millions, they were living in a bubble,” says Odysseas Papadimitriou, CEO of CardHub, referring to Americans living on home equity and credit card debt five years ago. “If we end up overleveraging ourselves again, it’s going to be the same thing repeated in a few years.”

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Americans added some $18 billion just in the second quarter of 2011. While some of this increase certainly comes from the greater availability of credit to people with high credit scores — people who manage their finances well and don’t live beyond their means — many more are betting on a turnaround that hasn’t manifested yet.

Keep in mind, we still owe around $1.7 trillion in non-revolving debt like mortgages, so it’s not as though credit cards are our only economic burden. Data on credit card debt from sources like the Federal Reserve shows a more moderate increase, but Papadimitriou says this tally is misleading because it fails to take into account the amount that credit-card issuers charge off. Issuing banks sell charged-off debt to collection firms for pennies on the dollar, so these dollars vanish from the “official” tally of our debt, but consumers are still saddled with those obligations. In fact, credit card charge-offs have reversed four months of declines and are on the rise again, according to Fitch Ratings.

If this debt trend continues, Papadimitriou says, we’ll wind up in a situation where banks are saddled with bundles of bad debt they can’t recoup; and millions of ordinary people, unwilling to relinquish a bubble-era mentality of living beyond their means, will have borrowed beyond their ability to repay. If this sounds similar to the subprime mortgage crisis, that’s because it is. “My fear is that group hasn’t recognized that there has been a permanent reset,” Papadimitriou says, “and that is the most dangerous group.”