One Bandwagon to Hop on: Credit Card Spending Down
Consumer credit use has dropped since the beginning of the Great Recession, which seems like good news for a country plagued by excessive consumer debt (often in the unhealthy, revolving credit-card type), as a recent report
from Credit.com
notes.
Here's a look at some potential causes of that dip and how you can resist the urge to spend, even if you're surrounded by good-time plastic-swipers.
What Do Lowered Credit Card Debt Numbers Really Mean?
The easy assumption is that Americans are purchasing less on credit and/or paying down the debt they currently have. But, according to some insiders, that may account for only part of the decrease in credit card debt we've seen lately. Here are some other potential causes:
- Credit card issuer charge-offs: Credit card companies make a lot of money from fees and interest, but they also end up "charging off' a lot of debt each year. Of course, they can afford to do this because of all the other income they collect, but still. When a customer files for bankruptcy and has her credit card debt forgiven by the court, the company generally writes that off as lost revenue. Similarly, if a consumer simply cannot pay, the issuer may sell the debt to a collection agency and charge off that debt. These numbers may not show up in the report of how much credit card debt Americans are currently holding, so we may have racked up more than we actually have to pay off.
- Tightened lending standards: Another result of the credit crisis we've found ourselves in is that lending standards for ordinary Americans have gotten tighter than ever before. This means that, even if an ordinary consumer may want to take on more debt, he may not be able to because nobody will lend to him. While this reads on a numbers-only report like lowered consumer debt, it can be a bad thing if consumers need access to lines of credit to buy cars or homes.
- New credit card rules: Finally, some analysts have suggested that the new rules introduced by the Credit CARD Act have given consumers a better idea of what they're getting themselves into when they sign up for credit cards, and thus acted as a preventative measure against excessive consumer debt.