A lot of American consumers are starting to pile on credit card purchases again so much so that it has already surpassed the 2008 levels. This development can mean different things for a lot of different people. For some, it means that they are doing better because they have the means to pay off big credit purchases. For others, it is a sign of a hard time having to rely on credit card more and more to make ends meet.
Reasons why people are spending so much again
There are a number of reasons why people are gravitating again towards frequent credit card use again. Here are a few of them to help you understand the situation.
There is no question that the economy is purchase driven. It performs better when you buy more. The higher that purchase activity is, the better the economy will be. This means that everything around is you are geared to make you spend money. That is also a big part of life as well. You need to spend, buy, and purchase in order to survive. It covers almost everything from the basic food and water to housing and even in the workplace. This is one of the reasons why credit card purchases are a constant.
Availability of credit – loose lender restriction after 2008 great recession
As the economy is on an upswing and even American’s income on the rise according to USA Today, a lot of lenders are loosening their tight regulations set during the 2008 Recession. This opens up various credit opportunities for people even for sub-prime candidates. As this happens, they are more prone to acquiring debt from card purchases. This will now start to become a problem because if they do not stop the cycle, they will find themselves in a deep financial hole.
Holidays are fast approaching
One of the possible reasons why credit card purchases are on the rise again is that the holidays are fast approaching. There can be a number of people who are already buying gifts as early as now for their loved ones. There are a lot of benefits to buying gifts for Christmas early and one of them is being able to save money before prices get too high. Though it can also create a problem for your finances especially if you do not have any holiday budget to show for it.
What can it lead to?
These are just some of the reasons why card purchases are on the rise again. WIth these, here are a few of the scenarios it can lead to.
When credit is offered and taken up by people who are not financially sound, it can lead to unmanageable debt. Even people who have a firm grip on their budget even fall victim to mismanaging their credit card use. When left unchecked, credit card debt is one of the biggest problems facing American today. In fact, the Value Penguin shares that average credit card debt for indebted households is over $9,000.
Once this happens, you might have the tendency to use another card to cover for the payment and then another when the same thing happens again. It is not really a long-term solution and it only puts you deeper in debt. It only prolongs the inevitable – you need to pay for your credit card purchases no matter what.
Lower credit score
Failure to pay for credit card purchases ripples out to a lot of areas in your life including your credit score. Unpaid bills especially those that go to collection brings your score down significantly. The more challenging part of all these is that it takes some time to restore them back up. That is why it makes a lot more sense to manage it before it goes down.
A lower credit score can limit your financial opportunities in the future and make it harder for you to take out loans you need. From your mortgage to car loans and even business loans, you might have a hard time getting approved or even getting the interest rate you need to make small payments on the loan.
Lost money with interest payment
You may not think much about it but when you choose to either pay the minimum amount only or totally neglect it altogether, interest payments will start to become a real problem. Not to mention all those penalties and fees you have to worry about. This is because lenders will have the authority to add these to your payments once you mismanage your card purchase.
This is a perfect example of compound interest working against you. Once they add these to your total bill and you choose to neglect it, it will be added to the principal amount the next time around where interest and fees will be based. It makes the amount bigger and bigger every month. The same idea applies to minimum payments where certain fees and interest is also added.
How to control credit card purchases?
By now, you have an idea why people are spending so much again and what can happen when left unchecked. It is probably a good idea to make sure that you do not fall prey in this vicious financial cycle of purchasing and not paying back. Here are a few things you can keep in mind when using your credit cards.
Stick to a budget
It is one thing to have a household budget and a completely different matter to stick to it. As challenging as it is to put together a budget, you need the willpower to follow the same. That is why it is important to make sure that you stick to your budget. This will help you manage credit card purchase and keep you out of debt.
Take a frugal lifestyle
It might not be for everyone because it requires a certain level of commitment but the results will be beneficial to your finances. You need to make sure that you create a separation between your income and expenses. As you do that, you get more elbow room with your finances and be able to pay down your credit card purchases more aggressively.
Use cash more
It may not look like much but using cash to pay for your expenses can have a significant effect on your finances. Paying with makes you understand the real value of the items you are buying. Rather than just swiping away on a terminal and signing a piece of paper, you see actual money leaving your hands. This can make you think twice about the purchase and that may be enough to prevent impulsive shopping.
One thing cash payment can do as well is it forces you to budget your money better. When you use cash and it runs out, that is it. You no longer have anything to pay for more purchases. However, a credit card has a different effect. There is a big chance you can go over budget especially if you do not pay attention to what you are buying.
Credit card purchases may be on the rise but there are a lot of ways to help you manage it better so you do not go into unmanageable debt.