Consumers Still Buried In Credit Card Debt

Americans racked up $48 billion dollars in new credit card debt in 2011 according to a recent study.

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Remember a few years ago when millions of Americans spent beyond their means, racked up a bunch of credit card debt, and then ran into trouble when global financial markets tanked and the housing market went under?

It seems old habits die hard, according to a new study by credit card comparison website CardHub, which found that consumers are charging more on their credit cards again.

Americans racked up nearly $48 billion in new credit card debt in 2011, 424 percent more than what they charged in 2010, and 577 percent more than in 2009. Although total outstanding credit rose only about $4 billion, that number was largely offset by the magnitude of consumer defaults—$44.2 billion worth.

"Looking back two years, with the exception of a single quarter, U.S. consumer debt management has consistently worsened," the report said, noting that the recent trend of consumers paying down debt doesn't match up with the hard data. "First-quarter pay-downs have become less significant and the amount of new debt added in each subsequent quarter has grown compared to its respective counterparts in the previous two years."

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But don't freak out, the U.S. isn't headed into another debt-fueled downward spiral just yet. While it's true that some Americans have had to turn to credit cards to bridge gaps in household finances, there's another reason for the apparent credit spending spree: credit card rewards.

"There's a lot of competition on rewards credit cards to attract big spending consumers," says Greg McBride, senior financial analyst at Bankrate.com. "These are consumers that by and large pay their balances in full every month, so people are spending a lot more on credit cards, but it doesn't necessarily mean they are carrying bigger balances or accumulating more debt."

About 35 percent of credit card holders pay off their balance each month, according to McBride, in large part to rack up rewards such as airline miles and gas points.

And although some experts cheered numbers showing that consumer credit card debt was dropping over the past few years, the bulk of that decline actually came from charge-offs, or card issuers writing off debt they had no hope to recoup.

"Card issuers were very aggressive in writing off bad debt in 2009 and 2010," McBride says. "That's why over the last year or so they've been out actively seeking to grow their business."

[Read: Got a Complaint About Your Bank? The New Consumer Czar Wants to Know.]

As credit card companies ramp up efforts to expand their business—and profits—consumers should be aware of the pitfalls that come with credit card debt. According to Odysseas Papadimitriou, founder and CEO of CardHub, there should be a permanent reset when it comes to consumer spending behavior, especially if one's wealth was tied to the booming housing market.

"It's critical that people make a budget and in doing so remember that, if their spending was at all tied to the housing market prior to the Great Recession, the fact that the bubble has burst means it cannot return to pre-recession levels no matter how much the economy recovers," Papadimitriou said in a statement.

Furthermore, even though many consumers unable to pay their credit card balances have had some of their debt erased by credit card companies, depending on where they live, that blemish on their credit record could stick around for anywhere between three and 15 years.

mhandley@usnews.com

Twitter: @mmhandley