Are American Consumers Relapsing Into Debt Addiction?

Meg Handley
September 19, 2011

After steering clear of credit cards for awhile, consumers are racking up debt again at an alarming pace.

Americans accumulated $18.4 billion in credit card debt in the second quarter of 2011, according to a recent study. That's 66 percent more debt accumulated than in the same quarter a year ago, and a whopping 368 percent more than in the second quarter of 2009.

[In Pictures: Top 10 Cities With the Most Debt.]

If consumers continue borrowing at the current pace, credit card debt could balloon by as much as $55 billion, on top of the already $772 billion in credit card debt Americans already owe. Keep in mind that credit cards aren't the only debt burden consumers are carrying--Americans owe another $1.7 trillion in non-revolving credit, such as mortgages, according to the Federal Reserve.

"The alarming trend here is that consumers are very aggressively accumulating debt," says Odysseas Papadimitriou, CEO of CardHub. "My concern is that the majority of the increase is from a group of consumers who haven't come to terms with what I call a 'permanent reset.'"

Papadimitriou says the heady highs of the housing bubble caused millions of Americans to rely on home equity and credit cards to fuel their overspending and over-borrowing. Coming off of that high has been rough, and some might be falling back into bad habits, he says.

[See Tougher Rules for Credit Bureaus Could Be On the Way.]

"If your income or spending was tied directly or indirectly to the housing bubble, no matter how much the economy recovers, you should not go back to where you were, because back where we were was a bubble," Papadimitriou says. "It wasn't normal economic conditions."

But other experts say the uptick in consumer credit use is just a function of increased accessibility to credit, and not an indication of a return to irresponsible spending. At the height of the recession, credit card companies all but suspended direct mailing campaigns and online advertising, severely curtailing new credit issuance at a time when existing credit card users were paring back their spending on credit as well.

Now as the economy has incrementally improved, credit card companies have resumed promoting their products and Americans seem to be ready and willing to start signing up again. "There was a lot of pent-up buying demand and consumer demand and for a while it wasn't being met by the credit card industry," says Ben Woolsey, director of consumer research at "The market is growing again, people are getting access to credit the way they used to. There's a return to the benefits of a credit card, a return to using credit cards."

[See 5 Secret Credit Card Perks.]

The deleveraging of debt that occurred during the recession was largely the result of Americans' fear of a worsening economy and banks charging off bad debt, Woolsey says, and the increase in credit use over the past few months seems to indicate Americans might be ready to start spending again.

"I think it's a good indicator that we're moving in the right direction," Woolsey says. "Credit card spending has always been a leading indicator of consumer confidence and spending, which could spell good things for the retail industry, especially moving into the fourth quarter and the holiday season."

A quick survey of credit card offers shows issuers are aggressively courting consumers with top-quality credit. "Credit card [companies] have really scaled back exposure to riskier card holders, the people most prone to delinquency," says Greg McBride, senior financial analyst at "But at the same time, they've have become increasingly competitive for top-quality consumers, offering attractive reward cards and zero-percent balance transfers."

[See 12 Money Mistakes Almost Everyone Makes.]

Another reason for the increase in credit usage could be that consumers feel more comfortable using credit again, due to new regulations that govern credit card companies. Now, credit card companies must wait 60 days before hiking interest rates on existing accounts and low teaser rates must be kept in place for one year. Credit card companies are also not allowed to market on college campuses, which could keep students from racking up big credit card bills while in school.

"There's definitely a group of consumers that has recognized that credit card debt is not as dangerous as it used to be," Papadimitriou says. "That's definitely going to help in the longer term when it comes to consumer spending."