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Consumers continue to turn away from credit card debt
Monday, 17 January 2011 12:00
Millions of consumers stopped using their credit cards altogether in 2010, though a portion of that was due to some being unable to pay their credit card debt at all, according to a report from the Minneapolis Star-Tribune. In all, the number of Americans with at least one credit card dipped to 62 million last year, down from 70 million in 2009.Instead of taking on credit card debt to make everyday purchases, most who no longer have these accounts rely largely on debit instead, the report said. This option offers most of the same features as credit, such as the ability to make purchases online, and may also have fewer fees associated with it.
However, there are headaches associated with debit as well, the report said. Some companies, such as rental services or hotels, may charge hundreds of dollars to the cards at the time of purchase, as a means of securing their property in case of damage. But that may change with the new consumer focus on using these cards.
The overall shift to the use of debit is similar to the way credit cards gained popularity in the late 1980s, the report said. At that time, lenders sent out millions of preapproved cards to consumers. But since the current recession set in, they've effectively done the opposite, revoking many checking accounts over delinquent and defaulted credit card debt.
"When an account gets charged off, what normally happens is that the account is closed," Darryl Dahlheimer, program director for Lutheran Social Service Financial Counseling Service in the Twin Cities, told the newspaper. "It's an involuntarily thing on the part of the card-holder. Nobody wants that to happen because it's a big black mark on your credit report, you lose your credit cards and you're still liable for the debt."
Overall, most major lenders have seen their rates of defaulted and delinquent credit card debt decline over the last several months as consumers made a greater effort to improve their credit health and reduce their balances. This in turn has lead to higher profits in the industry.
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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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