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If there is one positive fall-out from the credit crisis, it is that more Americans are reining in credit card spending and paying down credit card debt.
According to a recent study by BillShrink.com of 150,000 consumers, nearly 60 percent of credit card users are now paying off their monthly card balances in full. This is an almost 33 percent increase from last year, when less than half of consumers (46 percent) paid off their credit card balance at the end of each month.
The findings are in line with data from the Federal Reserve showing that revolving consumer credit (largely a measure of credit card balances) has been declining for 15th month in a row. November last year saw a record drop of $17.5 billion, followed by a $8.5 billion decrease in revolving consumer credit in December.
The changing habits around credit card usage may signal that consumers have begun to cut back and monitor their finances more closely in the face of a continuing weak economy and high unemployment rates. It may also in part be caused by a shift in consumers’ attitude towards credit cards.
Over the past year, as credit card companies took steps to tighten terms before the new credit card rules stepped into effect, many cardholders saw interest rates shooting up on existing credit card balances, or had credit limits sharply cut back. And while card issuers under the new credit card law won’t be able to raise interest rates retroactively, unless a cardholder is 60 days behind with payments, the dramatically changing credit card terms over the past year has taken its toll on consumer confidence, as more woke up to the downside of credit card usage.
Consumers looking to curb credit card spending instead have been turning to other types of plastic. Debit card usage has been steadily on the rise for a number of years, and it increased sharply last year, with a 13.8 jump in Visa debit card transactions and a 10 percent in MasterCard debit card transactions in the U.S. from 2008 to 2009.
Prepaid credit cards, popular among people who don’t have a bank account, are also growing in popularity. According to Mercator Advisory Group, a credit and payment research service, the amount of money loaded on prepaid credit cards is expected to almost grow from about $4 billion in 2008 to $14.1 billion by 2011.
Many consumers prefer debit cards, because they offer the same payment convenience as credit cards, without the risk of accumulating high-interest credit card debt by underestimating charges or being tempted to make impulse purchases.
