The Impact of Low Charge-Offs on Credit Card Debt

Written By Aaron Sarentino
Apr 4, 2018
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Credit Charge-Off Impact. According to a recent study by WalletHub, U.S. consumers have managed to rack up over $1 trillion in credit card debt. In the last year alone, the amount of debt accumulated was a whopping $92.2 billion. This figure is the highest it’s been since 2007, the study adds. 

Why has this happened?

Low charge-off rates: the amount of unpaid debt that credit card companies have sold or written off is lower than normal because fewer consumer accounts are in default.

While low charge-off rates make lenders more willing to lengthen credit lines to consumers, many are expanding credit to those who are not qualified. Some overextended consumers have capitalized on this loophole by applying for and spending even more on new credit card accounts.

A few more key findings:

  • Approximately 30 percent of those with credit card debt have no recollection of why they are in debt. This indicates some consumers aren’t mindful of their spending and could be living beyond their means.
  • Charge-offs are very low. In 2016-2017, the rate hovered between 2 and 4 percent.
  • $67.6 billion in credit card debt was added in the fourth quarter of 2017, which is the largest quarterly increase in 30 years.

What does this mean for consumers?

Those who have reached the end of their rope and are struggling to stay afloat may finally decide to take control of their debt. Others are content with only making the minimum payments because they think they are saving money each month. The problem is that only paying the minimum allows the creditor to pile on even more interest.

Americans will continue to spend with a reckless regard for their growing balances, and their monthly payments could eventually become unbearable. It doesn’t help that “the low charge-off rate is helping lenders continue to extend credit, making it easier for consumers to spend,” notes ABC News. Even worse, some may take drastic actions, like borrowing huge sums from their nest egg to survive.

The bottom line: Another credit card debt crisis is brewing, and it’s time for consumers to do something about it before it’s too late.

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