Why Consumers Are Shunning Credit Cards
After building up credit card debt in graduate school,
She's not alone in shunning plastic. According to the credit reporting agency
"If you're a serial spender or charger, and you have a lower credit limit, you're able to charge less and carry less of a balance," says
The days of high credit card debt also turned out to be expensive for the credit card companies, which faced an uptick in defaults during the recent recession. "They had given credit much too freely and approved high-risk people. Issuers found themselves in a precarious situation, so now they've cut back," explains Hardekopf. That's one reason consumers are receiving far fewer card offers through the mail, in addition to facing heightened scrutiny when applying for new cards.
The recession also appears to have made people smarter about avoiding expensive debt. "Without great confidence in their long-term financial picture, people are much more likely to try living within their means right now. That means they're using money they already have in their pockets," says
Many card companies raised their interest rates in advance of the newly implemented credit card regulations, making credit card debt even more expensive for consumers, Jusko adds. "If you're a consumer with a sizable credit card balance, and your interest rate has increased while your credit line has decreased, you are now paying more each month just to run in place. The thought of using that credit card is much less attractive, at least until you feel that you've got your financial situation back under control," he says.
Some studies suggest that cash and debit are replacing credit cards. Javelin Strategy & Research recently found that for online purchases, the value of sales by debit cards rose 21 percent from 2008 to 2009.
But consumers aren't becoming debt-free altogether.
Other types of loans -- including auto and personal loans -- are up, the Fed reports. Whitman reflects that trend. She took out an auto loan when she needed a car to get around, and she has a line of credit for large computer purchases. But she's grown strict about avoiding credit card debt. She says, "I've learned my lesson the hard way ...I'd rather keep a close eye on my budget, pay off my student loan debt, and save as much as possible."
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Personal Finance - Why Consumers Are Shunning Credit Cards
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