Is the era of credit cards over?

Recent studies are suggesting that credit card usage is on a downward spiral. Furthermore, revolving consumer debt has declined by 15% or $145 Billion since the beginning of the credit crisis in August /September of 2008. This report which has not been made public yet shows that credit card usage in way down in 2009 in comparison with 2007 and 2008. As of November of 2009, only 56% of consumers reported using their credit cards in the last 30 days. However, in 2008 and 2007 consumer credit card activity in the last 30 days was at 64% and 87% respectively. That is a huge drop in the amount of consumer spending via credit cards.

Some analysts are saying this is a direct impact of the Credit Card Reformation Act. However, others are not so quick to agree. Consumer debt is only down by 10%. If people are only making minimum payments on their “Discover More Card” their balance will really not decline that much. A credit card balance will not go down at all in many cases where only the minimum amount due is paid . Furthermore, in 2009, when the Credit Card Act was passed, credit card companies responded, as expected, by raising interest rates. More analysts tend to think the economy has more to do with the decline in credit card usage over the last two years. More and more people are out of jobs these days. Unemployment stands very high at 9.5%. A decline in income directly effects a downfall in spending, People with less income are less able to get new credit, make monthly payments for existing credit and end up without. Credit card reform has nothing to do with those factors.

Some of this decline in credit card usage is simply due to the weak economy. If people are spending less, then they’re using credit cards less. They’re also trying to pay down their debt. But these factors can’t be the whole story: spending and balances haven’t declined nearly as dramatically since 2007 as card usage. It’s likely the credit card legislation also had something to do with it.

Although credit card usage is down, credit card offers in the mail are way up from last year. This goes to show that credit card companies are somewhat more apt to lend than before, which in actuality is a positive economic sign. Our economy does not function well without credit. As soon as credit became scarce, so did jobs. More credit is definitely required for any economic upswing to occur. Once jobs are more abundant credit will become easier to get and credit card usage will be on the rise again.

Related posts:

1. Why Credit Card Processing is an important industry
2. Personal Credit and Your Small Business