Consumers Ditch Credit Cards and Cut Back On Spending

[May 1, 2009.]

 

Debt Relief With Reduced Credit Card Balances
According to the most recent reports, credit card companies have been hit from both sides as more consumers have stopped paying back their credit card debt; while many others have ceased using their credit cards altogether. Both of these actions have quickly crippled creditors leaving these companies with significant revenue losses. Credit card charge-offs have risen by 8.4 percent in February, a record high expected to soon reach 10 percent.

And as previously mentioned, a Federal report showed that revolving credit, mostly comprised of credit card debt, dropped by 9.7 percent in February. According to the Federal Reserve, the latest data showed the highest percentage decline in consumer credit card debt in over 30 years. Analysts agree that rising unemployment rates and job instability have played a significant role to these record figures

Reduce Debt With Debit Cards - Spending Only What You Have
Interestingly, the popular transaction merchant, Visa Inc. reported for the first time that total volume purchases through debit cards surpassed credit card purchases. Visa's rival, Mastercard is also scheduled to release its data quite soon. For the time being however, it seems that many consumers have taken a page directly out of common debt reduction programs, and are only spending what they truly have.

Many debt consolidation programs offer debt relief solutions by advising individuals to avoid credit cards, and make purchases using cash or debit cards. Unlike credit cards which carry balances from month to month, debit cards operate much like cash itself and immediately deduct funds from an individual's bank account. Although debit cards don't offer as many perks or credit-building history as credit cards, they are a great way to begin eliminating debt as it can significantly reduce spending.

Change in Spending Habits Come As No Surprise
The recent shift in consumer spending really comes as no surprise since so many consumers are likely to struggle in this economy. As jobs are lost, people cut back on their spending and often give their credit cards a second thought. Additionally, part of the reason why credit card debt is often included in debt consolidation loans is because of the excessively high rate of interest on these accounts. Unfortunately, some consumers have been unluckily penalized by their creditor since many companies have begun increasing the annual percentage rate. Most recently, the Obama Administration passed a series of legislation to reform the credit card industry - however, these changes will not take effect until July 2010.

If you or somebody you know is struggling with credit card debt, be sure to visit this page to view our site's resource for credit card debt consolidation solutions.

"Debit Card Use Overtakes Credit Cards" - [Wall Street Journal]

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.