Putting away the plastic: Credit card use plunges
Filed under: Economy
Just call it that non-swiping sound. It seems that Americans are keeping their credit cards in their wallets, as the nation's worst recession in decades has prompted citizens to re-evaluate their spending habits. Balances on U.S. consumer credit cards fell by $7.4 billion in February, the U.S. Federal Reserve announced Tuesday. This translates to a -9.7 percent annual rate, the largest rate of decline since 1976. Economists surveyed by Bloomberg News had expected February card card use to contract by $3 billion.
Credit increased a revised $8.1 billion or 3.8 percent in January. Over the past 12 months, credit has expanded by 1.1 percent – the slowest growth since 1992.
Frugal consumers
In February, total outstanding consumer credit, including revolving and non-revolving credit, declined by a 3.5% annual rate, or by $7.5 billion to a seasonally adjusted $2.56 trillion, the Fed said.
Economic Analysis: Without question, Americans are in belt-tightening mode, something you'd expect during a recession. Even so, this cycle's pronounced recession, with its to-date large job lay-offs, and accompanying financial crisis, has taken economizing to levels not seen in decades. The largest drop in credit since 1972, on an annualized basis, indicates that consumers are not only concerned about the U.S. economy's performance in the month's ahead, but also suggests a structural shift in the economy – one where consumers not only pay down revolving debt, but weed out frivolous consumption. Reduced credit card limits by banks have reinforced that trend.
The implications for GDP growth? Obviously, the U.S. recovery will not follow a typical pattern, at least until the economy adjusts to commerce based more on production, quality of life, and infrastructure concerns, and less on consumer goods.
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Reader Comments (Page 1 of 6)
4-07-2009 @ 8:03PM
Duke said...
Thank God for Dave Ramsey. He is the guru of credit card cutting. Suzie Orman is good too. America needs to learn new spending habits. We don't need to carry so much debt. Sure it makes the banks rich, but look at the banks now. They are in a world of hurt too. They just got too greedy and couldn't back their loans either. We need to go back to the days of 20% down on a home and the same for a car. It will take time, but it makes more sense.
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4-07-2009 @ 9:10PM
kat said...
amen to you duke. we are struggling, BUT we bought this house 20 years ago with a normal mortgage and have 10 years to go. Instead of buying a new car, I paid off this one which I have now had since 2002 and can send my daughter to college without loans. Luckily, she got a partial scholarship and we pay the rest. Hopefully we can do this with our other son as well, otherwise, it could get tough. But I'm saving. Just saving and paying off the credit cards...
4-07-2009 @ 9:32PM
BB said...
AMEN
4-08-2009 @ 1:57PM
Mike McKibben said...
Duke, I agree with you almost 100%. The only problem I have is with the 20% down on a new home. It is hard for new home buyers to afford homes if the try to save AND pay the rents I see now. There was a time when that was possible, but wages have been stagnant over the past 10 years (or getting less), and cost have gone up. But perhaps you are right, 20% might be what it will take.
4-09-2009 @ 12:28PM
Primo said...
Duke,
I agree with you about the 20% down, but what % of the population can make that happen, it would take some a decade to put 20% down on an avg 250-300k home with today's avg salary. If min wage is not in line with the rate of inflation the avg consumer of homes and cars will be way out of reach. If you want people to use less of the banks credit and more cash from their own pockets we need increase circulation of paper back in this country.
4-07-2009 @ 8:42PM
lamalanga said...
about time we all took brother stair's advice. get out of debt, stay single, don't have kids. the end times is upon all you all.
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4-07-2009 @ 8:44PM
LAMALANGA said...
WE ALL SENSED IT. GET OUT OF DEBT. THE END TIMES IS HERE.
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4-08-2009 @ 11:38AM
Case123 said...
If the "END TIMES IS HERE" wouldn't you want to charge as much as you could?
4-07-2009 @ 8:48PM
LAMALANGA said...
All money talk shows have been hammering the message to get out of debt. I haven't owned a credit card in 4 years. Can't nobody hack me.
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4-07-2009 @ 9:02PM
Joe said...
Sweet! We are on the road to recovery and out of the bondage of the credit card company.
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4-07-2009 @ 9:07PM
dennis said...
I only have 2 credit cards and snapped both of them last month when the bank rewarded my PERFECT payment record by raising my rates. When I asked why the increase they told me it was due to the hard times they are having. I asked them to review my payment record I was told it didn't matter. Well it doesn't matter to me if I never use them again. I'll pay them off and off them.
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4-07-2009 @ 9:12PM
Rose said...
Consumer credit is also shrinking because large banks significantly reduce credit lines and increased interest rates. Most of the large banks reduced credit lines for many consumers that were and could pay. The reduction of lines of credit has reduced credit scores leaving many consumers stranded and unable to get new lines of credit. You cannot charge if there is no credit line to charge. An increase in interest rates and reductions of credit lines has caused many consumers to payoff their credit cards. Other consumers are establishing installment loans with smaller banks and credit unions. They are leaving the big banks for ever. What is not indicated is that large banks have alienated current and future customers and their friends.
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4-07-2009 @ 9:33PM
Mike said...
Next thing you know, the banks will be looking for more bailout money because people paid off their credit card balances, and the banks are losing money because they can't collect the 20% "rip-off" interest rates anymore.
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4-07-2009 @ 10:11PM
CAT said...
EXACTLY! Paid off my LAST credit card balance 2 days ago (0% interest time was up) and NO MORE EVER! I had one charge 31% because I was 26 SECONDS late paying online!! (Damn Slow AOL) one time after I had been with this bank for 15 years- Good Bye to that one... Another Raised my interest rate because they thought I had 1 card too many- guess so-got rid of that one too! The cards were convenient but they got toooo expensive and tooo easy to use....The ONLY card I use is my Home Depot one- 0% interest 6mos. to a year- I actually Make a bit of money on this one and get great service and products! unlike the banks.
4-07-2009 @ 9:41PM
james said...
We have spent more than a trillion to try and save the economy
They could have paid everyone's Visa bill. Then at least the Americans would benefit, instead of the Chinese.
Give up, we are doomed.
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4-07-2009 @ 9:54PM
AL said...
The government got rid of Rick Wagoner of GM and I question that, even though Rick was a disgrace. So! Why doesn't the same government prosecute these bankers for DEFRAUDING? Oh, that's right, we give these people bonus's for criminality. What in the hell is wrong with the OBAMA Administration? Apparently Americans are not sitting around waiting for the White House guru to get off of Oprah Winfrey or Dave Letterman, and I assume that his next TV show will be QVC. Americns are fed up with the damn bonus's and bailouts and just pulling out of banks and buying only what is needed and not wants anymore. Kudo's for them.
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4-07-2009 @ 11:05PM
greg said...
you go Al!!!! I with you on that one. Washington has become the new "Hollywood" and our president is eating it up. Doesn't he have a job or something? He scares the hell out of me.
4-07-2009 @ 10:11PM
jan said...
GOOD! Keep it up don't use your credit cards. nThey charge ridiculous interest anyway. They need a protest of sorts. Credit card addiction has put the banks in a very good position. They have been getting away with usury and the goverment did nothing to regulate the industry. The American people have to stand up to idiots who are controlling this country and in effect, us.Have you heard of the rico act (racketeer influence and corrupt organization act). They should go after the credit card issuers and the predatory lenders and prosecute them. It's criminal what they have gotten away with. Protest and boycott. Speak up or lose out!
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4-07-2009 @ 10:22PM
Mary said...
I refuse to use credit cards with high interest rates. It is inexcusable to stick it to the consumer who wants to purchase your goods and services via your business' credit cards. If Victoria Secret, J.C. Penney, Sears, Macy's, and a host of other major retailers go down the tubes...it will due to the Department Store Bank that messes with their customers.
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4-07-2009 @ 10:27PM
jim said...
Anyone that has a credit card is not very smart, best way to do business is cash only !! People want their cake and eat it to. Well, look at the mess you are in now! I have never had a credit card in my life, own two boats & two cars, a house and pay day-to-day bills. We are on the boat every weekend and have virtually no debt (exept house payment) if you do not need it do not buy it!! Americans need to stop buying crap to just wind up in some storage, so they can buy more crap you do not need to have!!
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