According to new data from the Federal Reserve, consumers are dumping their credit cards and slowing down on other types of borrowing at a faster-than-expected pace. In August alone, consumers cut $11.8 billion in borrowing, which represents a 5.8 percent annual rate of decline.
But why are consumers putting a stop to credit card usage and other types of borrowing? According to analysts, they're reacting to tough economic times by only spending what they have. But more importantly, they're sick and tired of banks and credit-card issuers. This feeling is proven by the drop in credit card debt by 13.1% from $9.91 billion to $889.41 billion.
It seems that consumers simply want to do away with borrowing altogether and instead work with what they have. According to a recent survey from Consumer Reports, 32 percent of respondents had paid off or closed their credit cards in the past 18 months. Half of those respondents explained that they did so because they were tired of limit cuts, interest-rate hikes, and new charges.
This makes you wonder if the new Credit Card Bill of Rights passed recently by Congress could change a few minds about borrowing. Or are too many people fed up with the system and simply want to manage their money the old-fashioned "mattress-stuffing" way?
Well, maybe not by mattress stuffing. According to a recent Tower Group study, many consumers are increasing the use of debit cards. In fact, the study shows that debit card usage exceeded credit cards for the first time in history.
However, experts say that banks don't intend to be left behind simply because consumers aren't interested in accumulating debt through credit cards and borrowing. In other words, we can expect banks to find ways to add charges and fees to debit card purchases in the near future.
How do you feel about using credit cards? Has your attitude changed about them since the recession?
