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The Great Recession: Are We More Frugal?

March 15th, 2010

The most expensive "free" soda you'll ever purchase.

Credit Cards In The News

Credit cards have been hitting the news lately.  Over the past year, almost everyone I’ve run into has had their credit limits reduced for one reason or another.  Then, in late February, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD, for short) went into effect.  For specific information on how these laws impact our lives, read this article from Free From Broke.

Have Our Habits Changed?

The most recent credit card news is a bit disappointing.  According to a report by CardHub.com, Americans have cut $93 billion in credit card debt from 2008-2009.  Great news, right?  Unfortunately, an estimated 90% of the reduction is due to borrower bankruptcy & credit card company charge-offs on accounts over 180 days due, while only $10 billion was due to consumer payoffs. In other words, we haven’t drastically turned as frugal as we thought.

Of course, there are plenty of conclusions you can draw from this study.  Perhaps we aren’t as frugal, or maybe in the midst of the Great Recession, people have chosen to prioritize other bills over the credit cards, like their mortgage, electricity, or car payments.  Also, I suspect a drastic increase in “fix my credit” cases out there, where they encourage card holders to stop paying on their accounts for months, then come back and attempt to settle the debt for pennies on the dollar.

Frugal Out Of Necessity

The good news is that credit card use has hit a plateau.  The true test of whether we’ve collectively changed our habits will be on the other end of the Recession.  Will credit card use increase again, or will people continue living within their means with debit cards?  In America and much of the West, will we turn from a negative-savings rate, to setting aside money for emergencies?  Are we just being frugal now because we HAVE to?  It seems any answer right now creates more questions!  Ever since my early 20’s when I applied for a credit card to get a free Padres T-shirt, my credit use increased!  I jumped the pay-back curve by a few years when we paid off our credit cards a bit over two years ago.

Your Credit Card Stories

How do you perceive this $93 billion cut in credit card debt being attributable to bankruptcies & charge-offs?

Do you have stories of slashed credit lines?

Did you ever apply for a credit card just for a free gift?


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Jason Personal Finance

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