Americans just paid off a ton of credit-card debt—but here’s the bad news

Americans just paid off a ton of credit-card debt—but here’s the bad news


A lot of Americans paid big credit-card bills in the first quarter of 2018. And they still have a long way to go.

Americans repaid $40.3 billion in credit card debt during the first quarter of 2018, according to a new analysis of data from the U.S. Census Bureau, Federal Reserve and credit agency TransUnion by the personal-finance website WalletHub.

That’s the second-highest amount paid off in one quarter since the first quarter of 2009, when consumers paid off more than $44 billion.

Now, the bad news: That doesn’t mean their debts are getting that much smaller. Americans ended 2017 with $91.6 billion in new credit-card debt, the largest annual amount since 2007 and 104% above the post-recession average. Outstanding credit card debt is at the second-highest point since the end of 2008, the report said.

In 2017, Americans hit a record high of $1.021 trillion in outstanding revolving debt (often categorized as credit-card debt). In April 2018, they still had more $1.030 trillion to pay off, according to the Federal Reserve.

Consumers’ recent debt payoff “is not as dramatic as the dollar amount makes it seem,” said Nick Clements, the co-founder of personal finance company MagnifyMoney, who previously worked in the credit industry.

The reason: The total amount of credit-card debt Americans have has also been growing.

What’s more, the first quarter of every year tends to look stunning for debt payoff, Clements said, because so many people spend massively in the fourth quarter of each year during the holidays. Then, during the first couple months of the new year, they use work bonuses to pay holiday debt back.

Another factor: More companies are now offering personal loans, Clements said, which can sometimes have lower interest rates than credit cards. When consumers use these loans to pay off their credit-card debt, that debt is considered to be “paid off.”

That said, there is some evidence Americans’ debt-paying progress may be here to stay.

Americans are becoming less delinquent on their debts. The number of delinquencies, or debts overdue by 30 days or more, dropped in several categories including credit-card debt, auto loans, home equity loans and personal loans, in the fourth quarter of 2017.

Unemployment is also at an 18-year low, meaning some consumers may now be able to pay debts, said Greg McBride, the chief financial analyst at personal-finance website Bankrate. (Those with lower incomes who are still struggling with the effects of unemployment may not fare as well.)

Now is a particularly important time to think about paying back debt, McBride said. The Federal Reserve is expected to raise interest rates after its two-day meeting, beginning Tuesday. That, in turn, will likely make debt more expensive.



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