After a record-setting year for credit card debt reduction in 2020, US consumers are once again adding new credit card debt by the billion, racking up $45.7billion during Q2 2021, according to WalletHub’s latest Credit Card Debt Study. That is an all-time record for credit card debt added during the second quarter of a year, and WalletHub now projects that consumers will add a total of $100billion in debt during 2021.
The rise in debt is not uniform across the country, though, as some areas have bigger payment problems than others. With that in mind, WalletHub compared all of the states based on how much residents owe to credit card companies – specifically, how those balances changed in Q2.
|States with the Biggest Debt Increase||States with the Smallest Debt Increase|
|New York||South Dakota|
Some other key stats from the findings included:
- Record Q2 Increase. Credit card debt increased by almost $45.7billion during Q2 2021, an all-time record for the second quarter of the year.
- Bigger-Than-Normal Buildup. Consumers’ Q2 2021 credit card debt increase was 2.6X bigger than the post-Great Recession average for a second quarter.
- Record Annual Projection. WalletHub projects that consumers will end the year with roughly $100billion more in credit card debt than they started with, which would be close to an annual record.
- Ease Your Debt. The best balance transfer credit cards currently offer 0% APRs for the first 18-20 months with no annual fee and balance transfer fees as low as 3%.
Following these findings, WalletHub released a Q&A with one of its analysts:
Why are credit card debt levels rising again?
“Credit card debt levels are rising again because the economic uncertainty caused by the coronavirus pandemic has subsided. People are reengaging with society, and they’re making up for lost time by living life to the fullest, even if they can’t quite afford it,” said Jill Gonzalez, WalletHub analyst. “The fact that credit card debt has increased significantly isn’t too much of a surprise, though it is unclear whether this will be a momentary reaction to the unique conditions caused by covid or the restart of consumers’ long-term slide toward financial instability.”
Why are debt levels increasing faster now than prior to the pandemic?
“Debt levels rose 32% more in the second quarter of 2021 compared to the same quarter in 2019 because consumer enthusiasm is outpacing the fundamentals. A lot of us are not as flush as we might feel right now, but we’re still spending like there’s no tomorrow,” said Jill Gonzalez, WalletHub analyst. “The starting point matters, too. After the pandemic began, consumers reduced credit card debt to levels not seen in decades, and now we’re seeing the pent-up demand in action.”
Did consumers fail to learn from their pre-pandemic financial mistakes?
“The $45.7billion increase in credit card debt during Q2 2021 indicates that consumers failed to learn much about sustainable spending from the pandemic,” said Jill Gonzalez, WalletHub analyst. “The fear people had of running out of money for food and housing, let alone other bill payments, has been overcome by enthusiasm at the prospect of post-pandemic life.”
Is rising credit card debt a sign of a healthy or weakening economy?
“Rising credit card debt can be a sign of a strengthening economy, because it indicates increased consumer spending. Credit card debt that rises too fast, however, is worrisome because it indicates cracks in the economy’s foundation that could send it toppling down,” said Jill Gonzalez, WalletHub analyst. “It really depends on how quickly and for how long credit card debt levels rise.
What can we expect from credit card debt levels during the rest of the year?
“We can expect credit card debt to continue to rise through the end of 2021, as consumers are on a trajectory similar to what we saw in 2018 and 2019,” said Jill Gonzalez, WalletHub analyst. “Ultimately, WalletHub projects a $100billion net increase in credit card debt for the year. After a first-quarter paydown of $55.6billion, that would mean we’re on track to rack up more than $155billion in new debt from April through December.”
What advice do you have for people trying to reduce their credit card debt?
“One of the most important things for people to do right now is make a well-thought-out budget that prevents new debt from being added and includes a monthly allotment for payments toward existing debt,” said Jill Gonzalez, WalletHub analyst. “A solid plan, combined with a tool such as a 0% APR balance transfer credit card, can help people get out of debt sooner and then stay out.”
Which areas of the country are doing the best and the worst when it comes to credit card debt?
“The states where credit card debt is rising the fastest are California, Texas and Florida,” said Jill Gonzalez, WalletHub analyst. “The states where credit card debt is rising at the slowest rate are Vermont, Wyoming and North Dakota. Some areas of the country are proving to be more financially resilient than others.”