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Credit card debt soars in 1 month

Meanwhile, the number of people filing for bankruptcy fell sharply. Don't count on that to last.

By MSN Money Partner Jan 11, 2012 3:52PM

This post comes from Christopher Maag at partner site on MSN MoneyIs 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."


More on and MSN Money:


I am surprised the article did not go into detail as to why bankruptcy (legalized theft) filings are down and credit card debt is up compared to 2009. It is the result of people (and this includes lenders) doing the same stupid things over and over. A person is only allowed to file for Chapter 7 bankruptcy once every 8 years. In other words, you cannot file for a Chapter 7 bankruptcy more than once in an 8-year period, or receive two Chapter 7 discharges in an 8-year period. In short a person's credit score improves after the courts remove all credit obligations. And lenders know the person can not file for "legalized theft" again for 8 years.

Jan 12, 2012 4:01PM

Surely this is not a surprise to anyone. High unemployment, coupled with under-employment and our inability to discipline our gift buying; i.e. tell little Suzie & Johnny that Santa is having a bad year so there won't be as many presents as might otherwise be expected, results in higher credit card debt. Media reporting continues to confound me. For example, MSN headline states unemployment claims rise unexpectedly last week. WHAT??? Unemployment claims ALWAYS rise the first & second week in January when holiday hires are let go. This is particularly true when unemployment is above 8%. Note to media...MOST Americans are not idiots!

Jan 12, 2012 3:17PM
As far the increase in credit card debt in November, this could be the result of the upcoming holiday season, with Black Friday now, in many cases, occurring even before Friday, coupled with an (albeit slight) increase in consumer confidence.  I know we spent more this year, and used the credit card most of the time, which we pay off right away, but we like the reward points you don't get by paying cash. 
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