Consumers' Personal Debt Ceilings On The Rise Again Federal Reserve data show consumer debt has begun ticking up again after dropping during the recession. The company that measures credit risk attributes growing credit card debt to wealthier people spending more freely and to poorer people not paying their balances in full.
NPR logo

Consumers' Personal Debt Ceilings On The Rise Again

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Consumers' Personal Debt Ceilings On The Rise Again

Consumers' Personal Debt Ceilings On The Rise Again

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

LINDA WERTHEIMER, host: With a weekend break in the debt ceiling negotiations, the Obama administration and congressional Republican leaders took their pleas directly to the American people. The White House posted a video on its website of President Obama at an informal chat in March, with a group of college students. The president spoke about the need for compromise in politics.

President BARACK OBAMA: The nature of our democracy, and the nature of our politics, is to marry principle to a political process that means you don't get a hundred percent of what you want.

WERTHEIMER: The Republicans used their response to Mr. Obama's weekly radio address yesterday to say that the president was not willing to compromise on budget cuts. Senator Orrin Hatch said Washington gridlock on the federal budget could only be resolved by changing the Constitution.

Senator ORRIN HATCH (Republican, Utah): Washington has consistently demonstrated that it cannot control its urge to spend. That is why the only long-term solution is a balanced budget amendment to the Constitution.

WERTHEIMER: We'll have more on the debt ceiling later in the program. First, we're going to hear about another borrowing limit - not the government's but the self-imposed debt ceilings of American consumers. When the financial crisis hit in 2008, consumers started cutting their spending by cutting up their credit cards. Now, consumer debt is rising again.

NPR's senior business editor, Marilyn Geewax, joins us to talk about what that means for the economy. Welcome.


WERTHEIMER: I would think that during hard economic times, people would need their credit cards. They'd run up money on the credit cards to pay for necessities like gas and groceries. But you say that people were more disciplined than that. Why?

GEEWAX: Well, they were afraid. Before the recession hit, most consumers were feeling relatively secure. Remember, Linda, that that time, the housing values were still going up; the job market was pretty strong; and the unemployment rate, five years ago at this time, it was 4.7 percent.

WERTHEIMER: That's amazing to think about.

GEEWAX: Yeah. Really. But it was much easier then, too, to get a loan. You could get a home equity loan, a credit card. And then when the recession hit three years ago, the unemployment rate went shooting up. That bottom dropped out of the housing market, and banks started making it a lot harder to get a credit card.

So we've got this shaky job market, and people who still had jobs decided to put their credit cards away than pay down their debts because they were afraid they'd be the next one on the unemployment line.

WERTHEIMER: So what do you mean when you say people put away their credit cards? Do you mean they kept them and didn't use them, or did they actually get rid of them?

GEEWAX: They actually got rid of them. Here's a number to illustrate that point. In 2010, so many Americans cut up their credit cards that the total number of accounts went down by 47 million. So you know, between the time the economic crisis hit in the fall of 2008 and the end of last year, the number of open credit card accounts was down by about a quarter. And the credit card balance is - it was down about 16 percent.

WERTHEIMER: So now we're in a recovery - at least, in theory. Are people using those credit cards again?

GEEWAX: Yes. The Federal Reserve has put out some data, and shows that consumer debt has increased each month so far this year. And in May - that's the month that we have the most recent data for - total consumer debt was up by about 2 and a half percent. Now, this is the kind of debt that includes those things like car loans and your student loans, credit cards - not your home mortgage debt.

WERTHEIMER: So why is this debt level rising? Are people going on spending sprees?

GEEWAX: Well, some people are out there spending more. Questions about consumer spending and borrowing were explored recently by FICO. That's that company that measures consumer credit risk. And they did a survey, and they found that bankers expect half of all credit card balances will be rising over the next six months. About one borrower in five will have less credit card debt by the end of this year, compared with the start.

WERTHEIMER: Who's doing the spending? Does FICO know that?

GEEWAX: I called them up to ask them about that, and they said that their survey found that this economic recovery is really very uneven in its impact. Wealthy people really are spending more freely, and they aren't worried about putting more debt onto their credit cards. But confidence is not very strong for average wage earners. People find their wages are pretty stagnant. And with more than 14 million people looking for jobs, they're quicker to accept lower salaries.

So at a lot of households, you've got credit card balances that are rising because the family just can't do more than put the minimum payment on their credit card every month. And when you make just that minimum payment, the interest costs build up and it increases the debt load over time, even though you haven't bought another thing.

WERTHEIMER: So how much debt is too much for an individual to carry?

GEEWAX: Well, we talked to financial planners, and they generally say that you should have your total housing cost, including your mortgage payment, at about 30 percent of your take-home pay. And then another 20 percent should go to your other debts - you know, your car loan, the student loans, the credit cards. And that leaves you with half your paycheck for things like food, gasoline, cell phone bills. And of course, you've got to put money away for retirement.

WERTHEIMER: Marilyn Geewax, NPR's senior business editor. Marilyn, thank you very much for joining us.

GEEWAX: You're welcome, Linda.

Copyright © 2011 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.