Friday, February 15, 2008

Consumers' credit card pain may be a long-term gain

One positive coming out of the current credit crunch: people may be thinking twice about using their credit cards.

The Associated Press recently reported that growth in consumer borrowing slowed sharply in December (holiday shopping season, even!) and was at its weakest level since last April. Meanwhile, credit-card delinquencies and defaults in December were up substantially from a year earlier, The Wall Street Journal noted.

To some, that’s a bad sign. The drop in credit-card use shows that consumers are "in trouble," according to one gloomy investment firm executive quoted by MarketWatch. "It reinforces the view that consumers are struggling with the bad housing market and tight credit. It doesn't bode well for the economy."

Maybe in the short run. But long-term, more consumers paying cash and being more cautious about debt is a good thing. How truly healthy can our nation be financially if the economy tanks because consumers stop buying things they can’t afford?

Not that I am completely anti-credit card. M and I still use a Chase Travel Rewards card for non-impulse items, such as gasoline, and planned purchases we fund with cash from our savings accounts (for which we don’t have a debit card).

But it’s a big change from more than a year ago, when we used our rewards card to buy just about everything, then paid off the full balance each month. I haven’t done any hard calculations, but I do believe that using a debit card connected to our checking account causes us to spend less in general and helps us stay within our means.

No doubt, a lot of people with overdue credit card and mortgage payments will experience a lot of pain in the months ahead, pain which will continue spreading to the economy and financial markets overall. But if that pain also teaches us something, maybe we’ll all be the better for it.

Have you cut your credit card spending recently because you are struggling financially? E-mail me your story at

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