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Credit card debt: Are consumers returning to bad habits?

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Eric Thayer/Reuters/File

(Read caption) Customers shop at Macy's department store in New York last month. Shoppers increased their credit card debt by an estimated $64 billion in the fourth quarter of 2011.

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Americans are edging back toward their bad old pre-recession habits, when they charged whatever they wanted on their credit cards and didn’t worry about the build up of debt. After starting 2011 by paying down over $32 billion in credit card debt, consumers are on track to end the year with a $64 billion increase in their net credit card debt, according to Card Hub’s latest survey of credit card debt.

That’s a far bigger increase than in either 2009 or 2010. Unfortunately, the situation in 2012 will worsen before it improves. You can thank the busy holiday shopping season for that. It occurs during the year’s fourth quarter, which is largely why the fourth quarter sees debt build up faster than in the second and third quarters combined.

Typically, Americans pay down their debt in the first quarter, buoyed by salary bonuses, tax refunds, and New Year’s resolutions. In 2009 and 2010, they paid down more in the first quarter than they ran up new debt through the end of the third quarter. The same cannot be said for 2011.

In the third quarter of 2011, consumer ran up 154 percent more credit card debt than they did in the same period a year earlier.

During the Great Recession, overleveraging (spending more than you bring in) caught up with consumers and companies alike as unemployment skyrocketed and revenue sources dried up and wreaked havoc on our economy. While current credit card debt is far from peak recession levels, the pace at which consumers are adding new debt foreshadows a return to such worrisome levels.

But improve, the situation surely can. Consumers have a number of options at their disposal, but the obvious first step in combating rising debt levels has to be budgeting.  It’s the “obvious” first step, not necessarily an easy one. People who are consistently spending beyond their means need to excise spending from their lives, and this necessitates making tough choices.


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