With debt elimination tips and cost cutting measures, we’ve been able to manage our credit card debt very well.
Credit Card Debt Is Down By Almost 10%
There’s a nice silver lining to this recession and credit crisis isn’t there? From the Alpha Consumer blog (US News), I read about how credit card debt has fallen close to 10% (that’s 9.7%), which is the greatest drop since 1978. Reasons for the drop in card spending? Simple, cardholders are spending less. Also, many accounts are going into default while credit card companies are putting the clamp down on credit.
The word from the credit card industry is that business is quite a bit tougher these days with many customers defaulting on their payments, so the card companies are responding by taking steps to minimize their risk: they’re increasing interest rates, closing problematic accounts and cutting credit limits. Well isn’t risk reduction a good thing? Having less credit can have its positive and negative consequences, depending on whom you ask:
The Pros of Less Credit: Credit card spending is down, people are saving more! It’s always great news when people are able to get a handle on their spending habits by simply learning to conserve more. Thanks to the recession, we’re forced to dial down our purchases and make do with less.
The Cons of Less Credit: The credit crisis is hindering our economic recovery since economic growth hinges on consumer spending and borrowing. That and it’s no fun when someone takes away our ability to spend and consume, but we need to swallow this bitter pill. I’ve read about consumers complaining about their closed accounts and higher fees, forcing them to limit their credit use and accumulation of debt.
I can see how it’s tough to be a credit card issuer. On the one hand, they’re the bad guys when they extend credit to consumers who end up borrowing themselves into heavy debt. But they’re also the bad guys when they tighten credit and have to face the wrath of cardholders with limited credit or closed accounts. They can’t win, can they?
Our Credit Card Spending Is Down By 50%
On a personal front, here’s our good news. Since last year, my family’s credit card usage and card debt have also decreased significantly thanks to following and applying various debt elimination tips and numerous cost cutting measures. Here’s how it breaks down:
My Credit Card Use: Down by 75% after I stopped seeing my doctor (the bulk of my card expenses were medical in nature). I used to have a ton of out of pocket medical bills that were tied to health issues which I would attribute to stress. But since quitting my job last year, I’ve lowered my health care costs (back to normal) after the stress factors miraculously vanished, not to mention the great decrease in commute/gas costs.
Spouse’s Credit Card Use: Down by 50%, with his card used for our family’s regular monthly expenses. We use this card to cover our groceries plus everything and anything that keeps our household operating. A 50% cut is tremendous, which means we’ve really done well to employ frugal steps to survive the recession.
How about you? How are your credit card spending and debt situation during this downturn?
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{ 14 comments… read them below or add one }
Are credit card spending is down 100%! We cut up our credit cards and canceled all of our accounts. Overall though, our spending is down considerable and our savings have never been higher.
I think this is such a positive direction for the country to be heading. Unfortunately, I think we will go right back at the first signs of recovery!
Baker,
Congratulations on getting rid of all your credit card spending! 🙂 Although we’d love to see ours down by 100%, we actually like using our cards to get the rewards. We are saving for our kids’ 529 accounts, which are funded through our Upromise credit cards, and we like the extra bucks this savings (spending?) program affords us. Yes, I agree that this is actually a huge positive for the country; and I doubly agree with you that as money habits go, when credit returns to being highly available and starts to run fast and loose once more, I can also imagine that we’ll be back to our old ways as a nation. Sigh.
My credit card spending hasn’t changed much. I pay off the card each month so I’ll get worried if I get to a month where I don’t have enough money to pay off the card.
I suppose an analysis of my own spending might show a downward trend though. Regardless, this is great news.
I’ve had a 180 degree turn on credit card use since the market crashed last fall. I’ve cut up 7 credit cards and use just the debit/credit card linked to my checking account for all my purchases.
Looked into Dave Ramsey’s course per your recommendations and started a debt snowball. Even though I knew this, the current economic crisis has really prompted me to act.
In one of Ramsey’s sessions he makes the point that the credit card “points” come at a very high price!
Devil’s advocate: Keynes would say that spending is necessary for the economy to rebound. Spending creates jobs. If people spend less and save more, then profits fall for companies, who in turn have to lay off workers – driving incomes down further. The laid off workers then have to use their savings, unemployment, et al to survive. The economy thrives on dollars being passed from person to person – the faster the better. I don’t know that lower credit card spending will help the economy. The government could balance the budget, but with revenues down they would either have to cut spending or raise taxes, which would hurt the flow of money even more. Instead, the government is engaging in deficit spending in a hope that the extra spending will speed up the economy and lead us out of a recession.
On a personal note, I think reducing your debt is a great way to manage your life. I’m just not sure it will help spur the economy or lead us out of the recession. Just my (Keynes’) two cents.
My spending in general is down but I still use my credit card for most of my spending. I think it’s better than using a debit card or cash since I can gain the rewards and I defer payment, allowing me to gain interest on the money longer.
In general, I think US consumers need to be smarter about spending overall, not just credit cards. Credit can be good financially if used well, but spending overall needed to decrease.
Gal
I have NO cc debt and NEVER have had. I still use the cc the same way I always have: co-payments on medical & Rx (reimbursed from FSA by the time the bill comes) and gas for the ease of paying at the pump +5% rebate card. I ALWAYS put the actual cash away to pay off the gas EVERY month.
I think people are so used to living on fake credit and inflated lifestyles that its like a crisis shock for them now to see their credit being cut.
And really, its everyone’s fault for letting this happen but to get out of it, we gotta take care of our own situation individually.
Personally my credit card bill is about the same or more but instead now I pay it off right away within a week or two, depending when i get paid. The expenses are usually for fuel or small expenses.
We went from a $20,000 + credit card bill to a $50. and change credit card bill. We paid off our account over approximately 3 years and cut our spending down to bare bones. I have things like the oil company & the orthodontist bill hit the credit card (I get 1% back), and I pay it in full every month. I did use it this month to buy an Entertainment book, and some dog toys from LTD Commodities. Both of those charges are being paid in full next week, and the recurring charges will be paid at month end. No finance charges, no worries about how we’ll pay the bill. It’s really such a great feeling of peace.
It’s also nice to see a charge hit the account and to immediately know what it is for. When I was doing a lot of internet shopping, charges would come through and it would take me days to figure out what it was for. That’s definitely a sign that you’re spending too much money. 🙂
This is awesome! It’s inspiring to read how others have really wiped out their debt and have controlled their card use quite a bit. Anyway, glad to hear everyone’s positive stories.
My question to you is — do you all find yourselves making these changes because of the recession, or was this just a personal decision you decided to do for other reasons? What’s your trigger for changing your ways? For us, yes, it’s the recession and the loss of our full time, predictable/stable income. Being self-employed can be hairy during this economic downturn so we’re trying to be play it safe rather than be sorry.
I remember how just a few years ago, I wasn’t as price-conscious or cost-conscious (we’d be frugal about some things, but not others), and we spent much more freely. Quite a stark contrast from what I am experiencing today.
Our credit card use has remained about the same. We seldom use our cards,but they do have balances that we continue to pay down. We are very cautious about this. We are about to be homeowners and don’t need extra debt.
Actually my credit card spending is UP this year. I use my cc for everything to get cash back and pay it off each month. (I have never had a balance) I have been in savings mode since I got married. (7/04.) We have saved almost half our income every year. Since the economy is down we have been able to find deals left and right. We bought a car (about 1/3 less than they wanted us to pay last year!), we are redoing our whole kitchen with granite, all wood cabinets, and stainless steel for only 6000.00 too. So, I have spend WAY more on my cc’s in 2009 than any other year I have had a credit card. Since we have the money in the bank to pay it off, I am pretty happy!
That is wonderful, I’m cheering you on. I watch my spending closely these days. I very seldom use my cards unless absolutely necessary so I am beginning to see some progress in my balances. On the other hand, my son, who is a parapalegic, uses his for everything and it is easier for him to carry his card with him than cash. He just about went balistic when I told him what his balance was this month and he really needed to watch his spending. I take care of all his finances for him and he really doesn’t understand the interest rates and all the charges that come with a credit card.
Like yours, mine were consumed by medical expenses for my son, eleven years worth since his injury, and I’m still trying to pay them down. It is hard to do and takes a long time to accomplish any decrease in the balance. There is a place that can help, http://www.godebtrelief.com, check them out.
It’s great you’re able to cut back so much and still enjoy the rewards the cards offer!