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More spending could come after consumer credit bottoms out
Monday, 13 September 2010 12:00
Experts say that while consumers have scaled back spending and reduced credit card debt, that trend won't continue forever.Households have successfully reduced their credit card debt and spending, and at the same time increased the rate at which they've built up their savings. That could mean they will be freer to spend that money in the future, according to a new report from Bloomberg. While debt payments have increased in recent months, the amount of disposable income people are putting toward doing so fell in the first quarter and is now near the average observed by the Federal Reserve Board over the last 30 years. That drop is expected to continue at least until the end of the year.
However, other experts are not so optimistic, because economic growth is likely to slow slightly in 2011 and spending is not likely to increase too significantly until the unemployment rate drops below 9 percent, the report said. But those that aren't spending are putting more into paying their credit card debt and, when lending conditions eventually loosen, more will be in a position to get a new line of credit and boost their spending again.
The report noted that retail sales likely crept up slightly in August - by 0.3 percent - after a similar jump in July. Some economists have seen this as a strong enough sign of recovery that they've declared the recession over, even as fears of a relapse persisted.
Consumers successfully saved 5.9 percent of their income in 2009, up considerably from earlier estimates of 4.2 percent, and that rate stayed more or less steady through the first seven months of the year. The report said that this implies more progress than expected in Americans' finances.
"The consumer has already done a lot of the heavy lifting," New York-based economist James Glassman told the news service. "I don’t think there is all that much balance-sheet drag ahead."
Other economists say that the quality of consumer credit has improved rapidly as charge offs continue to slide to pre-recession levels and delinquency experiences even greater drops, the report said.
Often, the rates of charge offs and delinquent credit card debt are closely tied to those for unemployment, but as the latter has stagnated, the former two have slid significantly, leading some to speculate that consumers without a job cannot have been locked out the credit system.
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Top Articles to Help You Lead A Debt-Free Life
- Debt Consolidation: “Debt Consolidation” is one of the most commonly misunderstood and misinterpreted personal finance strategies that consumers inquire about all the time. While some view it as a method of taking on new loans, others see it as a debt relief alternative. It is more important than ever for inquisitive consumers to have a very strong understanding of exactly what debt consolidation entails, and the impacts it can have on personal finances.
- Debt Relief: Debt relief is defined as a partial or total forgiveness of debt. When the term is used by the government, it usually refers to the forgiveness of debt to underdeveloped countries. Recently, it has begun to refer to the millions of consumers who are overwhelmed with debt seeking financial relief from their unsecured debt.
- Credit Card Debt: Credit card debt is an example of unsecured consumer debt, accessed through credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.
- Debt Settlement: Debt settlement programs use a third party to negotiate lower balances and interest rates on unsecured debt. This type of debt management plan helps provide consumers an alternative to bankruptcy while reducing your outstanding debt.
- Credit Counseling: There are a numerous options for consumers who want to start getting their finances under control after accumulating large amounts of debt, which could inevitably lead to credit problems further down the road. Consumers who are in control of most aspects of their finances, but still feel like they could use additional help managing their debt burden, could certainly benefit from the assistance of a consumer credit counseling service.
- How Do I Get Out of Debt?: Now that the national economy is beginning to recover and people are having a better time dealing with their personal finances, many consumers who found themselves sunk deep in debt over the last few years may be asking themselves the question, “How do I get out of debt?” Fortunately, there are a number of avenues consumers can take to get out of debt, each with benefits and drawbacks depending on how quickly people need to fix their financial problems.
- 10 Tips to Avoid the Debt Trap: Have you ever thought about why so many of the people you know are struggling with debt? Do you ever wonder why banks keep lending to certain individuals, even when they are falling behind on their payments? Did you know that debt problems are a leading cause of major societal problems, such as stress, divorce and alcoholism?
- Credit Management: Many consumers are finding themselves buried under a pile of mounting debt. With interest accumulating month after month in addition to late fees being charged, many consumers are finding it difficult to make just the minimum payments on their credit cards. Although this may seem like an endless battle, with a strict budget and some discipline there are credit management strategies and solutions that will allow consumers to reduce or even eliminate their debt.
- Credit Card Debt Reduction: In recent months, many Americans have made a greater effort to seek credit card debt reduction and reduce the balances they owe, but some may not know where to start. Fortunately, there are several options available for consumers thathave a financial goal to achieve credit card debt reduction.
- Credit problems: Paying down high levels of debt is one of the best ways to improve credit problems and increase one’s credit standing. But many people cannot do that so quickly, especially in this economy. About one-third of a credit score is based off of a credit utilization ratio, which is the total creditbalances divided by the total credit limits. A great target is to use no more than 30% of one’s available credit.
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