Consumer data from July shows that for the second month in a row, credit card use is down among shoppers, even as they went on summer vacations and prepared for back-to-school shopping sprees. Is this a sign that recession-weary Americans have grown fearful of going into debt, and think that keeping their credit cards in their wallets will help them stay in better financial shape?
The Federal Reserve report out this week showed a drop in credit card debt, to a seasonally adjusted $850.7 billion. In 2008, that number was $1.03 trillion, showing what the recession has done to the American economy. Since that record-high one trillion four years ago, many customers have cut back on credit card use.
At the same time, student loan debt is rising, and at record highs – making consumers even more wary of accruing more debt. A person still paying off student loans could be reluctant to pay for purchases with plastic, fearing the pull of greater debt.
Losing Out on Rewards
However, by not using credit cards, many Americans are missing out on the rewards that are offered by many credit cards, especially if they have a good credit score. The irony is that people who have achieved an excellent credit score might be the very ones most reluctant to use their credit cards, perhaps having recently paid them off.
“I hear from people all the time who have paid off a chunk of debt or managed to raise a poor credit score, and are now afraid to use their credit cards anymore,” says Roman Shteyn, co-founder of Credit-Land.com. “These people need to realize that just using a credit card isn’t going to put them back into debt or sink a credit score they worked hard to make excellent. In fact, they are losing out on great deals if they don’t use credit cards.”
Three Tips for Smart Credit Card Use
To take advantage of great credit card deals like frequent flyer miles, sign-on bonuses, cash back, and zero-percent financing for purchases, nervous consumers should remember a few rules of thumb.
- Use less than ten percent of your total available credit. Add up the credit lines from all your different credit cards, including bank-issued and store-issued credit cards. What’s the number? Take ten percent of that, and don’t spend more than that much on any credit card during one billing cycle. If all your credit lines add up to $10,000, try to keep your credit card spending under $1,000 per month.
- Pay off your balance in full before the due date each month. Almost every credit card offers a grace period, when no interest is charged if the card is paid off in full – usually about 25 days. If you keep your purchases to an amount you can afford to pay off, then you’ll earn cash back, points, miles, or whatever rewards your card offers, without paying a cent of interest.
- Set up automatic payments whenever possible. You can do two things – first, set up your credit card to automatically pay your utility bills and other monthly household bills that you would normally pay each month from your checking account. Then, set up your checking account to automatically pay off your credit card each month. This way, you can earn rewards on money you spend anyway each month, with very little effort on your part – just set it up. The automatic payments mean you’ll never be late on a bill, and you’ll earn rewards at the same time.
As the holiday shopping season ramps up and consumer confidence returns, hopefully more consumers will use their credit cards with confidence and take advantage of the offers and rewards available to them.