Posted by Mike Smith :: May 13, 2009 @ 6:18 amCredit card borrowing declined in February by the largest dollar amount in recorded history. It fell at an annual rate of $7.8 billion (9.7%).
It’s interesting to see consumers turning away from credit cards during difficult financial times. In the previous report, consumer borrowing rose at an $8.1 billion annual rate for January. At the time, analysts cited the increasing need for credit to pay for things like regular bills as more and more people faced job loss.
It’s possible that the latest decline is partially a result of credit being maxed out for many people who are just as in need of more help, but simply don’t have any more credit available to them. Auto and other personal loans in February rose slightly, at a $313 million annual rate, or 0.23 percent, which adds some validation to this theory. Another likely cause is that consumers are finally starting to get serious about cutting excess and waste from their spending out of necessity.
Consumer spending has an interesting relationship with the economy as a whole. In general, slow economies cause consumers to spend less even though increased spending would aid the recovery. A better scenario is when consumers continue to spend, but do so in more responsible ways, such as relying less on credit cards. By spending while living more within their means, consumers strengthen their own personal financial positions, while aiding in the economic recovery at the same time.
With such large changes in consumer borrowing from January to February, it will be very interesting to see what the March numbers report when they are released this month. The February numbers may be a temporary anomaly, but for the time being they certainly seem to be an encouraging sign that consumers are starting to take responsible actions.
Have you been relying on your credit cards more or less in the past few months?
1 Comment
Another factor might be lowered credit limits. This week, I received a letter from BofA that they're lowering the credit limit on my card from $50,000 to $25,000 -- in other words, from astronomically outrageous to ridiculous.
Considering that I only use it for online purchases (as a safety buffer -- should the number get compromised, anything over $50 is their responsibility, not mine), pay it off every month, and have never used more than $5,000, I couldn't care less. But for someone who's stretched to the limit, I can see how this would alter behavior drastically.
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