Concerned about Debt, U.S. Consumers Slow Down on Credit Card Use
Consumers across North America are paying down their credit card debt. Credit card defaults are growing scarcer, as debt repayment kicks in. This is a sure sign that the recession may indeed be over – not just not just in the number-crunching of economists, but in the hearts and minds of actual consumers. Let’s hope the trend continues.
Defaults on credit cards in the U.S. and Canada dropped in late 2010, suggesting that more consumers are managing their credit card debt better, and that they are starting to feel more secure with their finances. Surprisingly, in Canada, household debt increased, even though credit card defaults were reduced. Like in Canada, the U.S. had fewer credit card delinquencies; Fitch Ratings found that late payments recently bottomed out at an 18-month low.
Consumer groups and financial analysts regard this news as positive (obviously), since it seems to point to the fact that North American consumers are better able to handle their obligations. Rather than being crushed by the weight of debt and failing to make their payments, borrowers are in better shape, making payments on time and potentially moving out of recession mode.
Less Credit Card Use
Not only did credit card defaults fall in late 2010, but credit card use actually decreased, as well. AHN News reported that the number of credit-active Canadians decreased by 0.15%. This news could mean that Canadians are likely becoming pickier about how they pay for their shopping. Credit card debt can be like a double agent (a supposed friend who is really playing against you), resulting in unpleasant problems — some of which could have nothing directly to do with money.
The increasing consumer debt experienced across North America has provided a wake-up call to many consumers. One of the integral parts of our economy is consumer spending, and consumers have been reducing their purchases. After years of increased consumer debt, it is little wonder that concerned consumers are reducing their credit card use and deciding to reduce the debt that they are already saddled with. This is becoming increasingly common in Canada. Borrowers realize that even a credit card may not be the most financially sound way to buy things – especially if they carry a balance.
This trend isn’t limited to Canada. In the U.S., a similar trend away from credit card use is being seen. In the States, according to CNN Money, 8 million people no longer use credit cards. Americans are also annoyed with credit card debt. Many borrowers are showing their disappointment by getting rid of debt. In fact, household debt in the U.S. is heading lower, reports the Federal Reserve. The U.S. situation contrasts to what is happening with its northern neighbor — even as credit card use declines slightly.
Can Consumers Maintain the Changes?
For the time being, it seems that Canadians and Americans are ready to learn a lesson about excessive credit card use. With delinquencies down, and credit card use down, consumers seem ready to embrace financial change. But, this may not last.
A new year begins, and Americans and Canadians consider their holiday bills. Will defaults head higher again? It will be interesting to see what happens. And of course, if good time return, all lessons might be forgotten.
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