Are More Americans Starting to Use Credit Cards Again?

by April Lewis-Parks

People have had a tumultuous relationship with credit cards since the recession. A sizable percentage of Americans struggling with unemployment and financial shortfalls were forced to rely on plastic and racked up significant credit card debt to meet their daily needs. Others shunned credit cards in favor of cash and debit cards, while many households with battered credit found themselves unable to qualify for new lines of credit amid tightened lending restrictions.

A new report demonstrates that more affluent Americans may be returning to credit cards. The report from market research firm DataMonitor focuses primarily on richer customers, because they hold more credit cards than the masses, they maintain active accounts, and spend 3.2 times more on credit cards than average person, but data shows that credit card use is on the rise among all consumer demographics as well!

According to a recent Dow Jones report, the growing positive sentiment that boosted holiday spending and people who have become more financial disciplined in recent years may be renewing Americans’ confidence in credit cards.

Currently, consumer spending makes up roughly 70 percent of the U.S. economy. How people feel about the economy plays a core role in Americans’ spending habits, with data showing that the more confidence individuals are in the economy, the more they will spend on discretionary purchases. Consumer confidence has been rising and falling since the recession, with the January index reading falling to 61.1, from 64.8 in December according to the Conference Board.

Despite the increases in credit card use, analysts have mixed reviews about the future of credit card spending. Renewed credit card use may indicate a strengthening financial position of households and fiscal discipline, or it could suggest a growing reliance on credit amid economic volatility.

A sizable number of households report turning toward cash and debit cards to curb debt, while many households are relying on credit counseling to eliminate debt they racked up during the recession.

If you have outstanding debt that you would like to pay-off follow these rules:

1.     List all debts: Make a list of all credit card accounts include the account number, interest rate, outstanding balance, payment due date, credit limit and the minimum payment. Not only does this keep things organized but it better prevents bills from being late or unaccounted for.
2.     Pay more than monthly minimum: Try to pay more the than just the minimum amount due. Any amount paid over the minimum goes directly towards the balance owed. This allows debt to be paid off faster reducing overall interest.
3.     Make payments on-time: Falling behind on payments only causes unnecessary fees. Set up automatic payment plans to avoid late fee charges.
4.     Avoid accumulating new debt: Now is not the time to apply for new credit cards or loans. Focus on paying off debt already established. It’s difficult to get out of debt when new debt is mounting. Use cash for purchases rather than credit.
5.     Pay off high interest rate debts first. The most efficient way to resolve debt is by paying down the highest interest rate balances first. Once high-interest debt is paid down, tackle the next highest, and so on. Continue paying the minimum due on all other debts.
6.      Don’t hesitate to ask for help. There are reputable debt-counseling agencies that consolidate debt and teach individuals to manage their finances better. Consolidated Credit conducts free budgeting analyses and dispenses free advice on a daily basis. If someone needs help they can speak with a counselor with no obligation or visit ConsolidatedCredit.org.