Consumers are using cash and debit instead of credit cards
Consumers are shunning their credit cards. Credit bureau Equifax reports that the number of new cards that opened in 2007 was 70 million which dropped to almost 32 million in 2009. Credit card debt has also decreased. Consumers, who have been in debt in the past, are using only cash to purchase things as a credit clean up strategy. According to the Federal Reserve, credit card debt has decreased at an annual rate of 2.25 % in January, 2010.
Why are consumers shunning credit cards?
One of the reasons behind the decline in use of credit cards is that the issuers are offering less credit to consumers. Equifax found that the total available credit on new cards as of December 2009 was $10.6 billion which is less by more than twice the total balance that was available in 2007. Credit card interest rates have also gone up. The average rate is now 17%. Professional credit repair companies generally suggest debtors to obtain new credit cards in order to restore their credit. But due to the increase in credit card rates, consumers are becoming apprehensive of applying for new cards.
During the recent recession, many consumers defaulted and the high credit card debts turned out to be very expensive for the card issuers. Due to this, the credit card companies are offering new cards to consumers only after a lot of scrutiny. Many credit card issuers have also raised the interest rates in advance of the new credit card regulations. Because of all these factors, consumers prefer using debit in place of credit cards. According to Javelin Strategy & Research, the value of online purchases by debit cards has increased by 21% from 2008 to 2009.
In spite of the reduced use of credit cards, consumers are not becoming completely debt free. They are obtaining different types of personal loans apart from home loans. Due to this, the number of debtors seeking help from credit repair companies has also increased. The recession has made consumers take smarter financial decisions. They have become keen not only to pay off debts but are also taking precautions to avoid falling into debt again.
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