Credit Cards a Consumer Crutch During These Difficult Times

According to a recently released report by the Federal Reserve, June 2011 saw a significant rise in consumer borrowing. In fact, it happened to be the largest one-month gain since August of 2007. Consumers boosted the amount they borrowed overall in June by 15.5 billion, which is three times the original amount that was borrowed in May and more than economists expected.

Non-revolving (or close-ended) credit, such as auto and educational loans, represented the bulk of this increase – $10.3 billion – and was at its highest, since February. Revolving credit, such as credit cards, jumped by $5.21 billion – the most, according to the central bank, since March 2008. These numbers indicate that more and more Americans are turning to their credit cards and other types of loans to get them through this tough economic patch.

With gas and food prices creeping ever skyward as well, many consumers are finding it necessary to use the plastic to pay for their necessities. The vast amount of joblessness across the nation may make staying in school longer in the pursuit of additional training and education more appealing for many. Despite a slight decrease, the unemployment rate still remains uncomfortably high at 9.1%.

"With consumers still facing serious head winds from a deteriorating housing sector, considerable debt burdens, and high costs for food and energy, the income generated by a job market recovery is absolutely critical," said Joshua Shapiro, an economist at the independent global economic and financial consulting firm Maria Fiorini Ramirez, Inc., as reported in the New York Post.

Economic growth has been occurring, but slowly – at an annual rate of only 0.8% - during the first six months of 2011, which represents the feeblest improvement since the official end of the recession, in 2009.

While increased consumer borrowing generally indicates a growth in confidence regarding the economy because people are more willing to take on additional debt when they feel good about the state of their personal finances. June’s spike in credit card loans, though, may very well indicate the disturbing opposite: that more and more consumers are depending on their credit cards for their basic needs.

However, economists don’t expect consumers to load up on debt the same way they did in the middle of last decade. During that housing boom, people were willing to take on large amounts of debt based upon the value of their homes. The recent Federal Reserve report did not include real estate-related loans or mortgages.

Lauren Palmer

Lauren Palmer is a freelance writer who is a regular contributor to a variety of online and print publications. Although she has much to say about many subjects, she specializes in topics pertaining to personal finance. She holds a bachelor’s degree from NYU in journalism.