Home > Personal Finance > #041 — Are Your Credit Card Habits Changing For Good?

#041 — Are Your Credit Card Habits Changing For Good?

April 8th, 2009

Record Drop In Credit Card Usage

The Federal Reserve reported Tuesday that credit card usage & consumer borrowing (non-mortgage debt) has dropped at record levels.  Credit card spending fell at an annual rate of $7.8 billion, or 9.7%.  People are charging less and saving more.  That’s good news, right?

Lesson Learned?

In a vaccuum, decreased credit consumption is a victory in the battle against the bondage of debt.  Does that mean the Dave Ramsey’s and Suze Orman’s of the world have gotten through to the consumptive masses, and people are rejecting debt?  Hopefully, but studies show household debt decreases during times of recession and then, as creditors begin to make more credit lines available, consumers increase their credit card borrowing levels at the first sign that the economy is breaking out of a recession.

In fact, the reason the credit crunch is so huge during this recession, is because during the last recession (dot-com bust, 2001-2002), household debt actually grew because of low-interest rates and the break-out of credit card “teaser rates”.  So instead of a natural ebb & flow to credit availability, creditors have slashed credit card limits and increased minimum payments.  Basically, we’re now forced to double-correct our credit usage because our households kept on borrowing through our last recession!

Don’t Let History Repeat Itself

Use this double-correction recession to your advantage, and resist the urge to increase credit card spending when our economy begins to break out of this.  Practice delayed gratification by saving up to pay for things.  It is character-developing.  Use blog post and financial personalities to motivate yourself to get out of debt.  If you think you’re in too big a hole, consult some professionals about options prior to filing bankruptcy!  The point being, you need to eliminate past mistakes and work hard to put yourself into a position where financial mistakes won’t happen again.

Proverbs 22:7 (The Message) says “The poor are always ruled over by the rich, so don’t borrow and put yourself under their power.” Other versions say the borrower is servant, or slave to the lender.

With a deep recession and slashed credit limits, you have been forced to change your habits… for now.  What habits you default to when times are good again economically?

Are you subjected to the power of the rich?  Are you a servant?  Who owns you?

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photo by Andres Rueda

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