The economic crash caught many American consumers in surprise. However, financial analysts and watchers have said that it was a long time in coming.
For several years, American consumers had gone on a spending spree with their credit cards without really taking into account what the final costs would be. When the financial crash happened, credit industry experts saw that the soaring credit card debt played a large role in it.
The Federal Reserve maintains a survey of the total revolving debt that American consumers carry. Estimates put 90% of this amount to credit card balances. According to their figures, American consumers had $177 billion in revolving debt in September of 1988. 20 years later, in September 2008, figure was $977 billion, an increase of more than five times the 1988 value. However, in the current economical climate, consumers are drastically cutting back and current survey, dating back to last October, show a continuous drop in revolving debt, a rare occurrence.
Originally, credit cards came out as a perk for a bank's valued customers. However, by the time credit scoring became popular, credit companies began mass marketing credit cards, claiming that they could uniquely tailor the card's rates and penalties according to the consumer's financial score. This resulted in a huge expansion of the credit card market. Credit cards became available even to people who had very low credit scores. This will soon come to end once the credit card bill comes into play.
Making credit cards available to people with low credit scores may seem to be a generous move by credit card companies. However, the reality is not so reassuring. People have found out that these credit cards, while seemingly helpful, actually carry high interest rates and high fees which will ultimately bury the cardholder in debt. The credit card bill will put a stop to this by tightening restrictions on how credit cards are issued. It will muzzle many other practices of credit card companies as well.
The credit card industry is, of course not pleased with this. They argue that the credit card bill will cut down their profits. To make up for their losses, they will have to lower available credit, increase initial interest rates and cut down on awards and perks programs. These industry warnings carry little threat to American consumers who are now realizing just how dangerous credit card spending can be. The drop in revolving debt may just be the first indication of a growing change among American consumers' spending habits. A change which will hopefully lead to smarter, more efficient credit cardholders.