Credit Card Splurge

You’d think that the drop in yields and a Fed about to cut rates would’ve brought about some relief to credit card bills. No Sir.

And you might think that the highest interest rates on credit cards ever would deter consumers from loading up on additional credit card debt. Oh no.

Pedal to the metal and the cumulative picture spells trouble.

Look at the data.

Here are credit card interest rates versus the Fed Funds rate:

Credit card companies are charging interest rates on credit cards with the widest spread above the Fed funds rate ever. Not only that, these are the highest credit card interest rates ever. But there is no inflation. Right.

Looks like consumers are getting screwed.

As a natural consequence personal interest payments are racing higher:

Does this stop consumers from adding to credit card debt? Nope, they keep piling in:

And in Q2 consumers really went for it:

Revolving debt went up by 8% in April/May (vs. up 1.5% in Q1). 8% on top of the existing record credit card debt already.

Best hope they can all pay it off quickly otherwise those high interest rates will demand a reckoning.

Why the credit splurge as opposed to paying with cash? Either it’s pure confidence in their jobs and income or a larger trend perhaps, that of consumer stress.

Any signs that would suggest stress? Look no further to mortgages, the cash buyer has dried up:

So it’s not just credit cards that suggest a drying up of disposable cash.

But hey, maybe recent stock market gains have made everybody overly confident. After all stocks don’t go down anymore.

Best hope it’s not dumb confidence.


Unless you consider carrying record credit card debt and paying record interest rates and adding 8% of credit card debt on top of that in just one quarter to be smart.

Fact is 58% of Americans have less than $1,000 in savings. Large swaths of the American population are at the edge of trouble: “27% of adults would need to borrow or sell something to pay for an unexpected expense of $400. One quarter of adults have no retirement savings, and skipped necessary medical care in 2018 because they were unable to afford the cost”.

While we all live in a non sustainable fantasy of 3.8% unemployment reality is 50 year lows in unemployment don’t last. And yet the figures above are exacerbated by one very inconvenient fact: 78% of US workers live paycheck to paycheck.

That’s called living on the edge. And what better way to prepare for the next downturn than having little to no savings, but record credit card balances, paying record interest rates and piling on more credit card as we speak?

Best economy ever. Not if you look at the details. The credit card splurge is warning of a coming storm.

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32 replies »

  1. Have we seen this movie before? Last time the Banks were forced to adjust the minimum payment to where it would at least cover the interest charged…now though…the rates are so high that we will be watching congressional hearings as to why the Banks were not held in check…but I also remember the 2007 calamity and many people I know who were forced into bankruptcy were able to get competitive rates for mortgages just 2 years later…Bankruptcy is no longer a deterrent

  2. Just one word sums it all up perfectly : FAKE. And the childish fantasies will soon succumb to reality in a most amusing way – for some!

  3. I live in a community where the median household income is a little over $100,000 per year, house values are around $450,000 to $600,000, and has been one of the fastest growing places in America for the last 10 years. Over 70 percent college educated, top public rated schools in the nation, and property taxes that have went up 50% over the last 8 years, from around $8,000 per year to $12,000 per year per house. I noticed this past year, searching online public tax records, that many of my neighbors (in $500,000 houses) have started using credit cards to pay their property taxes, and are paying them late. It cost an extra 4% to use the credit card, and they are paying them late which adds another 3% per month. “Something” broke in this area over the last 6 months, and I am guessing the loss of state and local tax deductions was the last straw. I suspect that the huge rise in credit card use is somewhat tied to property tax and income tax payment issues for the middle and upper middle class tax payers in higher property tax areas across America. The loss of the “SALT” property tax write-off to punish blue states is backfiring IMHO. The irony is I live in a red state, soon to be blue (pun intended).

    • Interesting. The side effects of the tax cuts have yet to be fully understood.
      Would be wild if this indeed is what’s happening especially on a national level.

  4. But as Winston Churchill said:


    • So true. Churchill was a warmonger and dumb when it came to gold, but he said some wonderful things. One of my favorites was when a woman said to him that if he were her husband, she would put poison in his soup. To which he replied : Madam, if you were my wife, I would gladly drink it!

      And, as Einstein said:
      Two things are infinite. The universe and human stupidity – but I am not sure about the universe!


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