Trends in Consumer Debt

Consumer debt is a growing topic of concern and discussion in America. With the average credit card balance of everyday Americans hovering around $9,000 on his or her credit card, it is no wonder. In addition, increasing numbers of Americans are viewing credit card debt as a normal part of life. But, how did this trend start, and where is it headed?

Credit Cards Hit the Market
Since the 1980’s, consumer debt has been on a continual rise. Ironically, this is about the same time credit cards began to saturate the market. This growth was due largely to the fact that credit card companies figured out that direct mail campaigns and other mass media promotions were an effective way to obtain new customers. To sweeten the deal, credit card companies began offering credit cards with attractively low interest rates. In response to these low rates, more consumers began taking advantage of the convenience of credit cards.

Since the 1980’s, consumer debt has been on a continual rise. Ironically, this is about the same time credit cards began to saturate the market. This growth was due largely to the fact that credit card companies figured out that direct mail campaigns and other mass media promotions were an effective way to obtain new customers. To sweeten the deal, credit card companies began offering credit cards with attractively low interest rates. In response to these low rates, more consumers began taking advantage of the convenience of credit cards.

Spending Habits Evolve

As consumers began using their credit cards more, they started using cash and checks less when making purchases. In fact, the Federal Reserve has reported that credit card purchases have now surpassed purchases made with checks and cash. With credit card companies offering so many additional benefits with card membership, including extended warranties, reward programs, and cash back programs, it is not much of a surprise that more consumer are recognizing the benefits of using their credit cards rather than cash or checks.

Debit Cards Catch On

With the rise in popularity in credit cards, more consumers have also started taking advantage of prepaid debit cards. In fact, these cards have grown more in recent years than credit cards. This fact is larger because debit cards are far more convenient than writing checks or withdrawing cash from an ATM. In addition, consumers feel protected from the risk of incurring a debt they cannot repay when they use debit cards.

A Change in Thinking

In order for Americans to start clawing their way out of debt, they need to change their way of thinking. Many consumers mistakenly think of the money they spend on their credit cards as their own cash to spend. In reality, this cash is not theirs. Rather, it is money they are borrowing that must be repaid along with interest fees. To better control their spending habits, consumers need to think of their credit card expenditures as 30 day loans that are to be repaid at the end of those 30 days.

In addition, consumers often don’t make a true connection to the amount of money they are spending when they use their credit cards. Swiping a plastic card through a machine to make a purchase does not have the same psychological impact as doling out cold, hard cash. In fact, research has shown that consumers spend as much as three times as much when they use their credit card rather than cash – no wonder so many merchants and service providers are happy to accept credit cards! Therefore, the change of thinking also requires recognizing that the money being spent on the credit card is the same as money being spent when cash is involved.

The Future

According to the current trends, Americans are paying down less of their credit cards than they did just a few years ago. This trend is expected to continue. If it does, consumer debt will only get higher and higher. In addition, savings rates in the United States have become negative for the first time in the history of the country. This trend is also expected to continue.

Preventing Yourself From Becoming a Statistic

If you find these trends and statistics to be disheartening, there are several steps you can take to prevent yourself from becoming another American in debt. First, transfer your credit card balances from high interest credit cards to low interest credit cards. Take advantage of special introductory offers allowing free balance transfers with a 0% APR. Then, work diligently at paying off the debt. Put the plastic away and stop making purchases on the card, and then send all extra funds to the credit card each month.

Once you manage to pay off your credit card debt, be sure to spend on your credit card only what you can repay in a month. Then, make sure you pay your bill off in full at the end of each billing cycle. Once you have reached this point, make your credit card work for you and obtain a card with a reward program or cash back program. That way, you will not only be free of debt, you will receive cash or rewards just for using your card to make purchases.

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