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Credit Card Applications » News » Other » Credit Cards and Economy Crisis

Credit Cards and Economy Crisis

January 23, 2008
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Why the US Economy Recession May Be a Good Reason to Apply for Another Credit Card

European and Asian stock markets have been suffering from a painful recession and index decline for the last few months. Stock prices of biggest European financial and industrial enterprises have been falling down, with banking and oil-and-gas sectors incurring most of the loss.

The reason for the global stock market decline has been the US continuing economy recession, with one foot in a crash already, which in its turn was caused by the sub-prime mortgage lending and credit card crisis.

As the current Chairman of the Board of Governors of the US Federal Reserve System, Ben Bernanke acknowledged, the economy of the country is now undergoing a recession which is very likely to overflow into a deep crisis pulling along the strong but dependent however economies of European empires and developing yet economies, such as that in Russia.

The oversaturation on the US housing market led to the practice of unrestricted mortgage lending, when a new house became available even to a customer with weak credit history and low credit score. And when consumers appeared unable to repay their house and then their credit cards, the biggest credit lenders started losing millions in revenues and shares on the stock market.

A great number of credit card holders found themselves in unmanageable debt and are now unable to make both ends meet as they have a mortgage still to pay off. Giving most of their income to cover mortgage and using credit cards to pay for basic things, lots of people started defaulting on their credit lines.

All this has hurt the US economy and set worries at the global stock markets, entailing their recession. European investors are expressing concerns about the recession, admitting that it may have a negative effect on the economic advancement in Europe.

So, for the time being, world markets have withdrawn into slack, waiting for the outcome of the economic affair in the USA.

Now, considering the fact that more than half of all American citizens own a credit card or some other type of a loan, such as a car loan or mortgage, the mortgage and credit crisis and the overall recession must have stricken a serious blow on most households.

To relieve strains on the American households and give a push to the country's soon and easier economic recovery, The Federal Reserve has announced it will lower its prime rate, with President Bush following with a suggestion to make a $145 billion cut in taxes.

What does the prime rate reduction imply? It will be a great present for credit cardholders who lost all hope struggling with debt. Interest rates on credit cards will fall, too, allowing customers to repay their huge balances faster and a bit cheaper.

Banks and credit companies have suffered from enormous losses in revenues lately, so lowering credit cards' APRs will allow them to collect at least some of the charges and reduce bankruptcy cases. It is the most favorable time to reduce your debt with the help of a balance transfer credit card that will come with a much lower APR.

Credit card application with guaranteed approval and lower rates will become more available for good credit consumers, while most hopeless cardholders may have debt write-offs.

Of course, it does not mean that the rates reduction will be an everlasting grace. It is a temporary but general measure to provide relief for credit consumers and a stimulus to the economy's renewal. Then, credit card rates, as well as the qualifying requirements, will tighten up, bringing the credit industry back in its course.

However, every cloud has a silver lining. The mortgage crisis, together with the weakened US dollar, have made the real estate market a lucrative place for foreign investors and it can be a source of big revenues and financial aid to the damaged by unrestricted lending US economy.

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