Are consumers reluctant to use credit cards?

It has been noticed that in present times (2009), consumers are reluctant to spend money in shopping. Moreover, even if they shop, they are using debit cards and cash instead of paying through credit cards. This is in contrast to a general trend of using credit cards to purchase every single item regardless of its price. This shows that people are avoiding getting into debt, especially credit card debt.

Average credit card debt per household

According to the Nilson Report, released in April 2008, America’s credit card debt had reached $972.63 billion at the end of 2008, which is an increase of 1.12% from 2007. The report also revealed the fact that in 2008, the average credit card debt per household was $8329. In regard to this, it needs to be mentioned that the average American household income in 2007 was $50,233. This puts forward a question – “Are citizens trying to live within their means or they are simply trying to live large with the help of credit cards?”

Credit card delinquency rate

More recent data suggests the fact that the charge-off rates have dropped in the month of July 2009. The charge-off rate on credit cards has been reduced to 10.52, which shows a decrease in credit card debt from a record high of 10.72% in June 2009. Moreover, the credit card delinquency rate has also reduced 5.73% in July 2009 in comparison to 5.81 in the month of June 2009. This is the highest reduction in credit card delinquency rate in 2009 as well as the 4th consecutive month-to-month decline.

Credit Card Act of 2009 and delinquency rate

It is expected that the Credit Card Act of 2009 will help consumers to reduce the rate of credit card delinquency much more effectively. Under this law, banks will have to give a written notice to the consumers 45 days prior to increasing the interest rates or changing any other terms and conditions. Primary aim of this Act is to inform consumers regarding their credit and reduce their surprises about the sudden increase in the interest rates.

It can be assumed that these rules will help the consumers to reduce their credit card debt if they are able to use their credit cards much more responsibly.