Acting White House chief of saff Mick Mulvaney has been complaining about Washington’s reliance on credit since winning an upstate South Carolina congressional seat in 2010.
It still keeps him awake at night, Mulvaney said at a conference organized by the economic think tank Milken Institute earlier this month. Since he took office, the U.S. government’s debt has increased 39% to $22 trillion.
And it turns out the government isn’t only the denizen of Washington, D.C., buying now and paying later. The metropolitan area ranks second nationwide in the portion of credit card holders with balances higher than $50,000, according to an analysis by CompareCards, a division of the loan broker LendingTree. Only the Bridgeport, Conn., region — home to Greenwich, one of the richest American cities — placed higher.
The same study found 19.9% of D.C. cardholders had balances of $10,000 or higher, following Bridgeport with 22.9% and Virginia Beach, Va., with 20.5%. It comes against a growing backdrop of unsettling economic signals, including U.S. household debt that’s nearly $1 trillion higher than its peak in the late summer of 2008, the height of the global financial crisis.
“I’ve been in the five-figure credit card debt club while living in a big, expensive city,” said Matt Schulz, chief industry analyst for CompareCards. “It’s awful, and it pretty much consumes your life until you escape it. It took me about five years (and a couple of significant pay raises) to finally eliminate that.”
The rate at which U.S. cardholders are falling behind in their payments has begun inching upward, according to a report from the Federal Reserve Bank of New York, with 5.04% of accounts three months or more past due at the start of 2019.
Still, the increases are from “historically low levels and remain below pre-financial-crisis levels,” said Andrew Haughwout, senior vice president at the New York Fed. Credit card debt nationwide rose 4% to $848 billion in the year through early 2019, pushing total household obligations to $13.7 trillion.
Consumer debt is among a range of indicators that the Federal Reserve monitors to assess the strength of the U.S. economy, whose growth has been slowed by a widening U.S. trade war. The central bank’s monetary policy committee will conclude its latest meeting tomorrow, and investors predict it may cut short-term interest rates later this year.
That would provide a boost to the broader economy and to credit card users, particularly those with high balances. To get ahead in the meantime, Schulz advises increasing payments beyond the minimum required, if it’s just a token amount, and attempting to negotiate a lower rate from the card issuer.
About 8 in 10 card users who asked for a lower rate were given one, based on a recent survey, and the reduction “can make a huge difference in your ability to pay off your debt,” Schulz said.
Borrowers often have more power than they realize, he added, partly because credit-card lending is highly competitive.
“Banks want to keep people around,” he told the Washington Examiner. “There are an awful lot of people who who apply for a credit card, get the big sign-up bonus, keep it for a year, and then cancel it.”
High balances, he added, aren’t a problem for all users. Wealthy cardholders often carry significant amounts because they use their cards to finance investments or large projects, such as home remodeling; many have enough funds that the interest payment is insignificant.
Such habits tend to stand out more in areas with greater income inequality, such as the Washington, D.C., and Bridgeport areas, Schulz noted. If the number of people holding any credit card debt is larger, then the number with high balances makes up a smaller percentage.
In D.C., however, where households in the top 5% of earners have an average income of $353,000 (roughly 18 times what those in the bottom 20% bring home) their spending habits are compared against a much smaller base of cardholders. Lower-income residents may not earn enough to qualify for cards in the first place, and those that do sometimes have poor credit scores acquired as they struggle to pay bills.
Problems can arise when high-balance cardholders encounter unexpected expenses — much like what Mulvaney worries may occur in the U.S.
“If something happens, particularly overseas, that causes some type of crisis, typically we’d be able to fall back on our borrowing ability to get us through,” he said at the Milken conference. “I don’t know if you can do that with $22 trillion in debt.”
