Consumers Use Credit Cards Four Times More Than Predicted

The first sign that many Americans turned to credit cards while they hoped the skyrocketing gas and food prices would quiet down came in March. Consumers used about four times as much revolving credit as experts predicted, adding a whopping $15 billion to the total amount of outstanding debt owed in America. (Revolving credit is credit where a minimum monthly payment is required, but that can be used and reused up to the preset limit—like a credit card).

A new survey published by Javelin Strategy & Research of Pleasanton, California actually paints a different picture, suggesting instead that, according to their own views, American citizens of all ages and income groups have stopped using credit and credit cards as much as they have.

37 percent of their respondents claimed have reduced spending on credit cards, while only 10% increased their spending over the past few months.

Additionally, the survey found that:

• 45 percent of respondents say their ability to contribute to savings has decreased;
• 37 percent say they are using their credit cards less;
• 28 percent say their ability to pay off their credit card balance has become more difficult;
• 57 percent say they are more careful about how often they eat out at restaurants; and
• 46 percent say they are shopping more at discount stores like Wal-Mart and Target.

Skepticism Over Consumer Claims

However, despite this picture of consumer opinion, many of the questions in the survey have more to do with consumer perception of financial status, rather than actual numbers. Clearly, consumer attitudes are crucial to a healthy economy, making this survey very telling about how an economic downturn can keep consumers pessimistic about money.

In order to see whether or not consumers actually are using less credit, it’s easy to compare their opinions to actual economic statistics released by the government.

Initially, it seems that Federal Reserve statistics on consumer credit back up consumer’s perceptions of their own spending habits. Revolving credit for April had dropped by $4 million, showing the kind of drop that would be expected by the survey.

However, the Washington Post has reported the latest numbers on consumer credit, showing that after this initial drop, consumers were back to record highs. In fact, the newly-released stats show that consumer credit rose by $14.33 billion, or a 6.8 percent rate of increase. Revolving credit accounted for $5.49 billion, and the overall number is the fastest expansion of credit in seven months.

In any case, it appears that after a brief break, credit card spending continues to rise. It’s a good lesson in understanding how studies about the economy are presented. Luckily, despite what people say about their own habits, we have actual numbers to provide illuminating comparisons.

If you’re struggling with credit card debt, Chapter 7 bankruptcy may help.