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Monthly surge in credit card spending may not be a good sign

A recent publication reports that Americans put more on their credit cards in May than in any single month since November, 2007 -- around the start of the economic recession. Specifically, the Federal Reserve reports that consumer borrowing rose by $17.1 billion.

Could that be good news? You might think so, since increased borrowing could suggest that consumers are comfortable enough with their finances to take on additional debt. The same principle explains why many consumers sharply cut bank on their credit card debt after the start of the recession in late 2007. Only recently -- in the past year, in fact -- have consumers cautiously started to put more on their credit cards.

In this instance, unfortunately, the monthly increase in credit card debt may not reflect improved economic health. Rather, economists warn that the surge may actually indicate a response to weaker hiring, poor wage growth, and possibly mounting debts. Consumers might be relying on credit cards to cover everyday expenses.

There are several indications that the economic struggle may not be over. The economy created an average of 75,000 jobs per month in this year's second quarter, down from 225,000 jobs a month averaged in the first quarter. Wages have also barely kept pace with inflation. Although borrowing has increased steadily over the past 2 years, it has been mostly in auto and student loans.

If you are experiencing mounting credit card debt, bankruptcy may not be an option you regard as responsible. But in truth, unexpected job difficulties or sudden medical emergencies can create unmanageable credit card debt for even the most responsible of consumers. When that happens, Chapter 7 and Chapter 13 filings may represent the wisest financial strategy for you and your family. An attorney will be able to provide you with clear explanations of these options.

Source: Knoxnews.com, "Americans step up credit card use sharply in May," Martin Crutsinger, July 9, 2012

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