New Credit Card Data Is Just A Picture Of The Economy

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There is new data out about how Americans have been using their credit cards, according to the New York Times.   It seems that consumers are spending more, which is good for the economy, but lower income consumers are starting to incur debt again.   People who were better off were doing a good job of managing their finances and keeping their debt in control.

In this situation, what is good for the economy as a whole is not good for individual consumers.  The economy as a whole benefits from increased spending.  In the absence of real income growth, increased spending is based on revolving loans, largely from credit cards.   As someone who hopes the US economy improves, this is good news.  As a consumer advocate, I really hate to see people getting deeper in debt with their credit cards.  The article does show that there is more restraint in credit card spending than in years past.

“You’ve got people who already had good credit and were pretty much managing their credit, and because of the risk, paid down their debt even more,” said Maxine Sweet, vice president for public education at Experian. Then there were “very dramatic increases in debt by people who, mainly, lost jobs, but also had medical emergencies, and turned to credit cards to carry them through the hard times……

…The cash shoppers, Ms. Sweet suggested, “were the ones that were pretty much in control — they can say, ‘I’m going to be more conservative.’ ” People under more difficult circumstances had to put certain debts on their credit cards, she said.”

The article is so full of contradictions, that it is almost best to just dismiss the whole thing as a series of generalizations.  The important thing for individuals to know is that the economy is improving, but slowly.  Furthermore, we should not make the mistake of using our credit cards to leverage ourselves and go back into debt.   Spending based on credit might help the economy as a whole in the short term, but like always, it will be detrimental in the long term to both individuals and the economy as a whole.

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