Do you put your every day purchases on credit cards? I’ve done this for years, paying off the balance on time and in full every month, and collecting terrific perks – cash back and frequent flyer miles. For instance, we’re taking a family trip to Florida next week, and four of the five flights are free.
But this approach doesn’t work for everyone. You have to have a good handle on what your life costs on a monthly basis to pull this off, so when the bill comes in, there’s no question as to whether you can pay it in full.
I’m also convinced you also need to be a careful spender or a full-fledged cheapskate. Otherwise the use of plastic will inflate your willingness to spend. A study by two researchers at MIT, for example, found that people who participated in an auction for hot Celtic tickets and were allowed to pay with a credit card bid up to 100 percent more than those who were only allowed to pay with cash. See this column for details.
The problem these days is more people are using plastic to pay for food and other basics, and are finding it hard to pay off their cards. In December, an average of 7.6 percent of credit card loans were either at least 60 days delinquent or had gone into default.
The Wall Street Journal reports that consumers showing up at credit counseling centers are paying their credit card minimums rather than their mortgages, because they need the plastic to buy groceries and other basics. Scary.
The rate of borrowing has slowed: In December, consumers had $944 billion in total revolving debt – the bulk of it on credit cards — a seasonally adjusted annualized increase of just 2.7 percent. That compares to seasonally adjusted growth rates of 13.7 percent in November and 11.1 percent in October.
Clearly a slowdown in consumer spending will be bad for the overall economy. But why should economic growth be dependent on absurd levels of household debt? Hasn’t the economy been robust historically without people living this far in the red, enslaved by debt? I think a pullback is long overdue.
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on Wednesday, February 13th, 2008 at 12:11 pm and is filed under Debt Reduction, credit cards, spending.
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