U.S. consumers still adding billions in debt even after financial collapse

Despite the numerous reports that have been published since the economic collapse that consumers are tackling their debt loads and are beginning to scale back on the high life, Americans are continuing to add billions of dollars in debt. Did the financial meltdown teach anyone anything?

According to a new report from CardHub, a credit card website, American consumers added $28.2 billion in credit card debt in the second quarter, which represents the biggest debt accumulation since the end of the Great Recession. This also comes as consumers paid down $32.5 billion in debt in the first quarter.

The report highlighted that the average household credit card balance during the second quarter was $6,802, up from the first quarter’s $6,628. It is projected that the average balance will reach more than $7,000 by the end of the year.

Consumers also experienced an increase in credit card debt default: the latest quarter, according to the report, saw a default rate of 3.45 percent, up from the previous quarter’s 3.32 percent. “A continuance of this rebound in subsequent quarters could signal that credit card debt levels are increasingly unsustainable,” the report stated.

In other elements of the economy, consumers are still spending at high levels. For instance, new data from Experian Plc, an information service provider, noted that a record number of American consumers took out loans to purchase new and used cars. The data revealed that 85 percent of new car purchases and 53.8 percent of used card buys were financed.

Another report found that spending on restaurants, electronics, furniture, sporting goods and building materials also accelerated, suggesting that Americans are comfortable with attaining moderate forms of debt to consume for the present.

Overall consumer debt totaled $11.63 trillion in the last quarter as auto and student loans rose.

This is a reminder of what Peter Schiff, president of Euro Pacific Capital, wrote in June:

“In fact, borrowing to consume is the worst use of society’s limited store of savings. As explained in my book, How an Economy Grows and Why it Crashes, savings leads to capital formation and investment, which grows productive capacity. When production grows, goods and services become more plentiful and affordable, thereby raising living standards. Consumer credit interferes with this process. Funds borrowed for consumption are not available for more productive uses. Since consumer credit reduces investment, it also reduces future production, which must also reduce future consumption.”