Behind The $1 Trillion Credit Card Debt Alarm Bell Lies A Deeper Truth, And It's Not All That Bad

Credit card debt in the U.S. crossed the $1 trillion mark for the first time earlier this week, and it was met with much alarm. For many, it symbolized the recklessness of consumer behavior, a ticking time bomb waiting to explode.

But for Ryan Detrick, chief market strategist at The Carson Group, the devil is truly in the details, and the current narrative might just be a red herring.

Opening a Friday blog post with a poignant quote from Henry David Thoreau, Detrick noted, "It's not what you look at that matters, it's what you see."

The quote perfectly encapsulates the essence of his analysis — while a superficial glance at debt figures might stir up concerns, digging into the data unloads a more nuanced story.

The chief market strategist brought to light some significant points:

Contextualizing The Debt: While the credit card debt number may be at a nominal record, consumers aren’t overspending with abandon. "Credit card debt might be at a nominal record, but by no means are we seeing consumers go nuts buying everything on credit any more than they ever have in history," Detrick said.

He introduced a concept he dubbed "denominator blindness." As he explains it, “All we hear about is the numerator at a new high, but in a lot of cases, the denominator has been soaring as well."

The perspective urges to reassess figures in relation to a broader context. When comparing credit card debt to overall net worth, for instance, the increase in debt seems proportionate, even expected, he explained.

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The Serviceability Of Debt: An insightful chart from Detrick’s post indicated that household debt service payments — as a percentage of disposable income — are actually lower than pre-pandemic levels.

Essentially, while debt may be high, so are incomes, ensuring that consumers can handle their obligations.

Myths Debunked: Detrick dispelled a common misconception that consumers are maxing out their credit cards, pointing out that credit utilization remains stable. He also tackled the narrative that delinquency balances are skyrocketing, noting that 97.4% of total balances remain current on payments.

While some lenders, including JP Morgan Chase & Co JPM, Capital One Financial Corp COF, Discover Financial Services DFS and others, logged their biggest provision for credit losses earlier this year, most did due to macroeconomic outlook updates.

Positive Economic Indicators: The chief market strategist noted the boom in entrepreneurship, married with consumer collections at the lowest level in history. "Third-party collections hit an all-time low," Detrick said.

"If the consumer was in such bad shape like they keep telling us, this would probably show a much different backdrop. In fact, only 4.6% of consumers have collections against them, the lowest in history and well beneath the 6.3% from a year ago and 9.2% average through 2019."

More than that, "[nearly] 300,000 applications were filed the first half of this year, 2% more than last year and 21% above 2019," he said.

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