Credit Usage is on the Decline

Revolving credit – which is almost entirely credit card debt – dropped 7.8% during the month of December after already dropping 8.5% in November. According to reports from the Fed, this was the steepest percentage drop since January 1978.

Many experts are citing the drop in consumer spending as a sign of belt-tightening and a desire to pay off debt and begin saving in the face of employment worries and/or outright job loss. Wise consumers are protecting their credit scores and their futures by cutting out unnecessary spending.

And worries over future job loss are not unfounded. The nation’s unemployment rate climbed to 7.6% in January when the U.S. lost almost 600,000 jobs. Total job losses since December 2007 are more than 3 million.

This has to play a role, but two other factors naturally led to a decrease in credit card debt.

First, gasoline prices dropped. Consumers who were charging $800 per month for fuel were able to cut those charges to only $400-$500 by December.

The other reason should surprise credit card issuers the least of all. When these companies slashed credit limits and raised interest rates for millions of card holders, they could not spend more, even as they wanted to.

During the Christmas shopping season, retailers reported shoppers dividing their purchases between 2 and 3 different credit cards in order to avoid going over limit on any one card. That clearly indicates a desire to spend rather than a desire to save.

Some, of course, became angry and refused to create more debt when faced with interest rates approaching 30%.

Non-revolving debt also declined in December. That includes auto loans and student loans, along with loans for mobile homes, boats and trailers.

Auto loans seemed to lead the decline as auto lenders followed credit card issuers in a move to pull back on making loans. Average car loan interest rates were 6.4% in October and had risen to 8.4% by December. At the same time, the average length of loans fell below 60 months for the first time in years.

Some experts are predicting a spike in credit card use by March or April, due to the most recent job losses. Consumers may use savings for the first few months and then will turn to credit cards for basic living expenses such as food, utilities, and rent. However, since credit card issuers have cut spending limits, this prediction may not come true. your resource for free credit reports, credit cards, loans, and free credit repair advice.

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