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Credit Card Debt Rises for First Time in 5 Years

Equifax just released its National Consumer Credit Trends Report, and noted that credit card balances increased slightly in the past year from $533.3 to $536.5 billion. And while that’s basically a rounding error at a 0.6% increase, it was the first year-over-year increase in five years, according to the consumer finance data company.

This is an important development, because more credit card debt means more spending.

At least on the surface.

Now investors have to ask themselves whether the credit card debt increase and spending trends are sustainable — and more importantly, investable. Is it actually a sign of recovery, or just credit card debt for debt’s sake?

Actually, the details show that beyond a small uptick in credit card debt and a predictable rise in student loans, there is still some big deleveraging underway.

Some other year-over-year changes of note in consumer debt, according to Equifax, are that student loan debts increased 11.3% from $794.6 billion to $884.2 billion and auto debts increased 10.9% from $745.3 billion to $826.8 billion.

Interestingly enough, housing debt remains down. Borrowing for first mortgages decreased 0.9% from $7.79 trillion to $7.72 trillion, home equity installment loans were down 4.1% from $142.3 billion to $136.5 billion, and home equity revolving credit decreased 8.9% from $553.2 billion to $504.1 billion.

Here’s some commentary from EFX regarding credit card debt and other borrowing from Equifax Chief Economist Amy Crews Cutts:

“Only two major consumer credit segments are currently growing: auto financing and student loans. In all other segments, consumers are reducing their debt burdens, either negatively, through foreclosures and bankruptcies, or positively, through payoffs — payoffs are dominating in most cases today. We expect mortgage balances to begin rising again over the next several months as new home purchase loans overtake foreclosures and payoffs.”

So what does this mean for investors? Well, the lack of debt can be seen as a positive from the side of stability of the economy, but a negative in terms of growth. Obviously, crazy housing debt would spark fears of another bubble, so we can at least be comfortable that the recovery in real estate isn’t a head-fake.

But the bottom line is that more credit card debt and spending is necessary to get us back on track with a consumer-led recovery. If we are now in a “new normal” where nobody takes on debt and lives very conservatively, that could have serious effects on the stock market and especially consumer discretionary plays going forward.

We can debate philosophy on whether debt is bad or good, or whether it is simply a tool that can wind up having both desired and undesirable effects depending on the kind of debt and the kind of debtor.

But for investors, spending is the most important piece of the puzzle in the American recovery. And this mixed Equifax data shows that the certainty of a consumer-led recovery is still a long way off.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP

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