Consumers cut their credit- and charge-card balances by 9.7 percent in February.
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Americans slash credit-card borrowing
By Laurent Belsie | 04.07.09
After a one-month respite, Americans went back to cutting their credit-card balances in February with a vengeance.
They reduced their revolving credit at an annual rate of 9.7 percent, the Federal Reserve reported Tuesday. Revolving credit includes credit- and charge-card borrowing. That’s the fourth monthly decline in the last five and the sharpest one-month drop since January 1978.
Deflation worries
February’s drop in credit-card debt comes in a much different environment than the one that existed 30 years ago. Then, the Federal Reserve was fighting inflation and boosting interest rates, which made it expensive for Americans to carry a balance on their credit cards. In the first month of 1978, they slashed credit-card debt at an annual rate of 15.7 percent.
Today, the Fed is fighting deflation and has cut interest rates to nearly zero. But consumers have decided to retrench their credit-card spending anyway, worried about their jobs and the deep recession.
Deals on a car loan
The only increase in February was in nonrevolving credit, which includes loans for cars, mobile homes, boats, and education. That borrowing edged up at an annual rate of 0.25 percent.
The increase may have been fueled by auto loans, which saw interest rates plunge for new cars from 8.2 percent in January to 3.2 percent in February. The Federal Reserve has begun a concerted effort to reduce interest rates and rev up the pace of consumer loans by offering lenders low-cost financing.
Comments
2. Ofelia | 04.08.09
Even at 2.99% until paid, a credit card debt is best paid off when i cannot get anywhere near that return on a Certificate of Deposit or money market account. I’m saving $$ by paying it off rather than “saving” at a lower rate.
3. willie | 04.08.09
this is good news, and shows a modicum of common sense by the consumer; hopefully the glut of inventory of cheap import goods will be gone in another month or so and manufacturers can start improving production systems to cut more costs!
4. Doug Horn | 04.08.09
Several years ago I finally woke up to what a bad deal credit cards have become. I realized that if we could eliminate ours and start dealing in cash for those items we had previously charged, the savings in annual interest charges would be the same as giving and additional $5,000 per year to spend.
That was 1999.
In 2001 I lost my job. It’s been a tough row to hoe, but we’ve eliminated the cards.
Things are much better because of it.
5. Jo | 04.08.09
The comment on the interest rates is a good one.
With the Fed cutting rates to zero, why is it that credit card rates are at an all-time high? Not to mention penalties. In the 70’s 18% was high, today, 20% os average. In the seventies a penalty was $10, and if you had a good payment record it was often forgiven. Now it is $35 and will be applied if your payment arrives 5 minutes late.
Consumers, like me are getting rid of credit card debt because it has become nothing more than loan sharking. You may not get a visit from cousin Guido, but you will find it impossible to repay.
The punitive practices do just the opposite of what they should do. If someone is having problem paying bills, adding on additional charges and upping payments and interest pretty much guarantees they will eventually default. And for those of us with decent credit, the sudden jump in interest rates makes it certain that the company will lose my credit at the first opportunity.
Credit card companies are committing suicide by greed. We will all be better off when they go.
6. Brian Aubel | 04.08.09
Another factor not mentioned is major card issuers, such as B of A, GE Money Bank, and others, have been slashing credit limits for cards that they issue for bith their name and other stores (JC Penney, EBAY, and others). This is in an effort to cut future losses and improve their accounting valuations. If you don’t have the credit anymore, you can’t really spend it can you?
7. Barry | 04.08.09
People have become more aware the use of credit reduces your standard of living. Also what other business can change; fees, interest charged on existing loans and late penalties at will while at the same time exercising predatory lending practices to college students or the young who are unemployed still living at home?
Credit card companies have exercised predatory lending practices for years.
It’s no wonder people are beginning to reduce their use of credit cards and/or swearing off their use completely.
8. Bill | 04.08.09
We are at a point where we as Americans understand that we need credit, but at the same time we can’t go into debt living a lifestyle we can’t afford. This is evident by Americas recent efforts to pay down debt.
9. Herb in Sedona | 04.08.09
lanum is right. The Fed may have dropped the interest rates it can influence, but the credit card companies are increasing the margin they tack on to the prime. Examples: Citibank raised my rate from 7.4% to 13.24%; our business saw similar increases from Capital One and Citibank, with the most outrageous being Advanta going from 7% to 21%. All these with perfect credit histories. So, it doesn’t matter WHAT the Fed does as long as the SOB’s issuing the credit cards are not reined in. Maybe it is time to reinvoke usury laws, which seem to have disappeared in the name of deregulation.
10. Credit World | 04.09.09
I would say this is a good sign for the Americans in general.
Spending forward or using the money you don’t have and can’t afford to pay in the future, is not the way to spur the US economy.
It’s the right time for the Americans to change their spending habit.
11. Carl | 04.09.09
I do not understand several things. !. Why aren’t students taught in High School about Credit Cards and their traps.
Why are vendors allowed to approach students on campus with “Free Credit Cards”. Or any cards for that matter.
I am not waiting around much longer. I am 72, don’t plan on making any future purchases. If I need something I can ask my kids. So after being advice by a credit counselor; focus on your Mortgage payments first. With the credit cards you keep, pay them on time., For the outrageous cards just don’t pay those ridiculous rates. They are smack full of hidden charges. I tell them I am in a financial situation and also out of work. How the government can allow this practice to go on is not at all surprising.
12. Carl | 04.09.09
By the way, what set me off was my Advanta card. They told me the rate was raised to 34.99%. How sweet it is.
13. dickja | 05.30.09
What is so “amazing” about the ups and downs of the economy? On the “ups”- go for it- -on the downs- reign in. Don’t spend your time blaming the gov’t. You don’t hear from the people who are taking care of themselves. It’s the same with nature. How is your kidney? If you are not aware of it–it’s fine.
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1. e. lanum | 04.07.09
How about the fact that some credit card companies have upped their interest rate to 29%.
As far as I can see 27% + is now the average.