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Consumers to affirm card love in February with $1 trillion in debt

Brady Porche

What would you like for Valentine’s Day? How about a $1 trillion credit card debt?

If our recent hard-charging trends continue, American credit card debt will hit the $1 trillion level in late January or early February 2017.

Data from the Federal Reserve show that total revolving debt — mostly credit card balances — has increased by $4.4 billion per month on average since July 2015. Only twice in the past 24 months has credit card debt decreased from month to month. Credit card balances reached $969 billion in July, according to the Fed’s most recent G.19 consumer debt report released earlier this month. Do a straight-line projection at $4.4 billion per month, and the debt line crosses the $1 trillion mark just before Valentine’s Day.

Consumers are more committed to plastic than at any time since the economic crisis — and credit card issuers are increasingly eager to match up with new customers. Total card debt has climbed steadily since reaching a post-recession low point of $832.7 billion in April 2011. Last month the American Bankers Association said in a report that new card accounts reached their highest levels since the recession in the first quarter of this year — also bouncing back from a 2011 low.

Consumers have slowly become more comfortable with debt since the recession. The U.S. job market has grown slowly but steadily this year, and interest rates are still low despite constant rumblings of an impending bump in the federal funds rate.

Meanwhile, credit card issuers are investing heavily in rewards programs, rolling out some of the sweetest perks in recent memory. They’ve also begun to embrace the imperfections of low-scoring credit users, though subprime borrowers still lag the rest of the market in terms of card ownership.

Like any great romance, however, this current credit crush has the potential to fizzle. An interest rate hike could deliver a shock to those who use variable APR cards. Additionally, card issuers could see their generosity with rewards and subprime lending backfire. In a July research note, Credit Suisse analyst Moshe Orenbuch noted that rewards and co-branding programs dented issuers’ profitability in the second quarter, and that modest rises in delinquency helped drive higher loan loss reserves.

Nonetheless, any rate hike impact could be mitigated by resilient economic growth. Analysts such as Orenbuch expect card issuers to stick it out with rewards, cash back incentives and store cards until they see higher earnings.

Research shows it takes about three months for someone to recover from a breakup. The numbers above suggest that it takes nearly a decade for credit card debt to fully recover from a traumatic economic event such as the 2008 financial crisis. Barring any unexpected blips in the economy or a souring in the mood of issuers, this current card love is built to last.

By the way, Americans are expected to spend more than $100 on average on Valentine’s Day. Do you plan to charge it?

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