Americans have now reduced using their credit cards significantly keeping in mind the tough times that lie ahead. Thanks to the growing unemployment rates and shaky economy, they prefer using the debit cards over credit cards. Financial analysts are of the opinion that this trend will continue even after the economy improves in the following months.
The FRB (Federal Reserve Board) announced a fall of 6.3% in the month of July this year. The final instance of the customers using their credit cards extensively for purchases was in August 2008. One of the surveys conducted by Javelin Strategy and Research has revealed that the credit card usage that stood at 87% in 2007 fell significantly to just 56% in 2009. In the year 2010, the usage has dipped further to just 45%. There are a number of reasons for people to shun using their credit cards and playing safe.
The President of Javelin Strategy, the firm that conducted the research, James Van Dyke, has said that the growing rate of unemployment is one of the major factors for people to refrain from using their cards. A professor of accounting at San Diego University, Martha Doran, goes on to add that people are increasingly resorting to debit card usage since that limits them to spend only what they have on hand.
Another reason for the dip in the credit card usage is the lack of available credit. With the credit card lenders looking to limit their risks and losses on the cards, they are slashing the existing limit of the customers significantly, sometimes by 90%. Also, credit cards for college students also need the consent of their parents, which has thus brought down the number of pre-approved card for the students in this segment.
A large number of businesses are finding way to avoid the high transaction charges being charged by credit card lenders. Hence, they are offering incentives to people who are willing to use their debit card for their purchase in place of the credit cards, thus saving them some money in the process. The President of a consulting firm, Idealcost.com, Robert Livingston said that he was offered a discount of 7% for his wife`s engagement ring if he chose to pay by a check as compared to a credit card.
Another noticeable change is that the younger generation that likes to have real time information prefers using debit cards over credit cards to avoid huge debts.