Credit card defaults on the rise

As the economy improves, Americans are spending more money — and relying more on credit, leading to an increase in defaults.

Americans are defaulting on their credit cards at the highest rate in nearly a year. Experts blame the improving economy: Consumers are feeling more confident in their overall financial situations and they’re loosening their purse strings because of it. That confidence led to higher retail sales through the holiday season, but the credit card bills are coming due, and people are leaving them unpaid at an alarming rate, according to S&P and Experian. Another factor in the uptick in default rates is the increased willingness of financial institutions to extend credit to those who may struggle to pay it back.

Nationwide, the default rate was 0.91 percent in December; Chicago had the highest default index value of any U.S. city at 1.15.

It’s a tough time of year to pay down debt, because holiday bills are due but many families are also planning for spring and summer vacations, said Michael Foguth, founder of the Foguth Financial Group in Brighton, Mich. Foguth believes that more Americans are prioritizing vacations due to improving confidence about the economy, and spending more on smaller indulgences like eating out. But the desire for date nights or a weeklong retreat are often too rich for consumer’s budgets, he said.

“The reality is, if your paycheck doesn’t support your spending, you’re going to default,” he said. Foguth thinks that social media has enhanced our desire to “keep up with the Joneses” — another reason we’re spending money we can’t afford.

“I call it the ‘Vegas syndrome,’” he said. “People always tell you how fun their vacation was, but they don’t tell you how much money they lost.”