Just peek into anyone’s wallet and you will see a barrage of plastic cards. Credit cards have provided a simple but far too easy method for spending money, often for items that we can’t afford. You can charge every day purchases, from grocery items to hotel reservations, on that simple card. The economic downturn has shined the light back on the irresponsible, overindulgent spending that has plagued so many American consumers. Something has just got to give, doesn’t it?
Credit card expenses seem to be on a downward trend recently, however. According to the Federal Reserve, this is as a result of the return of conservative spending patterns brought on by high unemployment and crashing home values. The current economic crisis has brought attention to the need to curb extravagant charges on overextended cards. Consumers and experts alike are frequently starting to ask the question: Is it the end of the credit card era?
This phenomenon is not exclusive to the US. Data from the British Bankers Association found that credit card use in the UK is down slightly in August (£5.6 bn) from July’s total (£5.6 bn). The Reserve Bank of India reported the decline in the use of cards as well reporting a fall of 1.36 million between February 2008 and 2009.
The reason for its decline is not necessarily limited to the obvious. In addition to the combination of people saving more, the common desire to reduce consumerism by spending less, coupled with lower credit limits on their cards, leads to the down turn in use. Non-essential luxuries are being passed over as people focus their attention on paying down their credit and reducing their card balances.
Alternatives to credit cards are developing momentum. Prepaid credit cards, debit cards and simple cash transactions are on the rise. Denied and reduced credit card limits as a result of poor credit history have lead to people using prepaid cards and the increase in the use of debit cards.
Prepaid cards are very different from credit cards because the dollar amount loaded onto them is prepaid, not open ended. Once you ‘tap out’ on the prepaid amount you must add money to the balance to continue to spend. The trick is having money to add to the balance. If there is no balance then there is no spending, an easy way to manage your spending.
For people with bad credit history, that can not get a bank account, or those people with poor money management skills prepaid cards are perfect. They are able to charge the card up with a certain amount of money and once the money is off the card they have to re-load it. This method can certainly help with overspending issues.