For 2010, Consumers Should Opt For Cash, Not Credit

With the ending of the year 2009, consumers are now much more aware of their finances and have learned quite a lot – unfortunately, through the hard way – about managing their finances. Surviving the toughest economic recession since World War II forced consumers to reevaluate a lot of their consumption habits.

At the ending of the new year, consumers showed remarkable restraint and responsibility in their spending habits by spending less during the holiday spending season and, more importantly, sticking as much as possible to cash spending instead of using credit. Analysts expect this trend to continue in 2010.

Consumers are going to have to focus more on spending with cash than with credit if they plan to manage their finances much more efficiently. Spending with credit is going to be very risky for consumers. When spending with cash, consumers are much more aware of their expenses as they count out the dollar bills. With credit cards, it is harder to actually see how much of their finances are going out the window as they swipe their cards.

In any case, the credit industry itself is already forcing consumers to reevaluate their reliance on credit card spending. Well ahead of the major activation of the new credit legislation, the Credit CARD Act, credit card companies have changed credit card terms in preparation of the hit that their profits will take once the rules of the legislation are enforced. This changes have largely been detrimental to credit card holders.

At the moment, credit card holders are facing high interest rates, most of which have been moved from fixed to variable rates. Aside from that, they are also dealing with very low credit limits, higher minimum monthly payments, higher fees and more fees as well. In short, if a credit card holder makes a small mistake with his or her credit card spending, it could easily spell financial disaster.

Basically, credit card holders at the moment cannot afford to max out their credit cards. If they do, not only could it make a mess of their finances but their credit score might get hit badly. A drop in credit score could be quite disastrous at the moment and leave card holders without any recourse for quick credit or loans for emergencies such as job loss or health care emergencies. A good reminder for consumers is the more debt that they carry, the lesser options they have in case of a financial crisis.

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