Consumer Borrowing on the Rise

Recently reported figures have indicated that consumer borrowing is on the rise and, in fact, the amount that consumers borrowed in March was more than they had borrowed in the past four months. These figures are not just a reflection of credit cards as they include car loans as well. Nonetheless, it is a trend that defies any real explanation

According to recent Federal Reserve figures, the amount of consumer debt rose 6.7%, which translates to $13.5 billion dollars, in March. In February, it rose $5.6 billion from the previous month. In all, consumers are $2.425 trillion in debt. That’s right – trillion – that is with a “t” and not with an “m” or even a “b.”

One theory is that consumers are suffering from the falling value of real estate and have already taken out home equity loans. As a result, the only option they have left available to them is to put those charges on credit cards. In addition, many Americans are turning to their credit cards to pay for the cost of higher prices at the pumps.

On the flip side, mortgage borrowing is down. Economists are noticing that consumers seem to be increasing their credit card spending while decreasing their home loan spending. Is this a reflection of a changing society with changing values? Perhaps, but, from personal experience, I know that I would rather use my credit card than a home equity loan for making my purchases – including big purchases. My credit card actually has a lower interest rate than my home equity line of credit, it offers me rewards, and the debt is unsecured; why wouldn’t I choose my plastic over my equity loan?

I have a suspicion that many Americans are feeling the same way. With the fierce competition being waged between credit cards, the savvy consumer can manage to walk away with a pretty good interest rate. So, whereas consumers may have once turned to a home equity loan to pay for home improvement costs, it may be a better financial decision – and a more convenient one at that – to use the plastic instead.

Meanwhile, the credit card companies are jumping for joy over this trend. MasterCard announced that its profits jumped up 70% to a new all-time high. Transactions also increased by 19% as more consumers chose to use the plastic rather than checks or cash.

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