Credit card debt soars in 1 month

This post comes from Christopher Maag at partner site Credit.com.

Is your credit card feeling tired these days? Americans took on a massive amount of new credit card debt and other kinds of loans in November, according to a new report published by the Federal Reserve.

Total revolving debt, which mostly means credit cards, spiked by 8.5% in November. Nonrevolving debt, which includes things like car and student loans, grew even faster, with a 10.7% increase during the month -- for a total of $20.4 billion. Overall, consumers now carry $2.48 trillion in debt, not counting mortgage debt.

"Yes, that's a big jump," says Robert Lawless, a law professor and consumer credit expert at University of Illinois. "More common increases are about 2%."

But now is an especially volatile time for borrowing and lending. Total revolving credit dropped 9.6% in 2009 and 7.5% in 2010, but then appeared to stabilize so far this year, according to the Fed report. It grew by a single percent in October, before jumping the following month.

What does this mean for consumers' financial health? Surprisingly good things, at least in the short term, Lawless says. According to a study he published in 2006, increases in consumer credit actually lead to decreases in the number of consumers declaring bankruptcy. Post continues below.

The latest numbers appear to confirm the trend, which Lawless says extends back to the Great Depression. November's increase in consumer credit was followed by a larger-than-normal decrease in the number of people declaring bankruptcy. Just over 4,500 Americans filed for bankruptcy in December, a 12.1% decrease from December 2010, according to research Lawless posted recently on the Credit Slips blog.

Why this surprising result?

"I'm not entirely sure why that is, but my supposition is that more people are able to borrow as an alternative to bankruptcy," Lawless says.

But getting a loan to avoid bankruptcy now may just exacerbate the problem later. Within two or three years of a big consumer credit spike, the number of bankruptcies often starts rising again.

"That's the paradox of consumer credit," says Lawless. "In the short run, bankruptcy does go down when credit goes up. But bankruptcy takes time and money. So over time, bankruptcies will eventually rise."

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