Credit and Cash Spending Cut

Credit Card and Cash Spending are Going down for Fear of Recession

This Christmas was a hard time for retailers and chain stores making greatest revenues at customers' craze about purchasing various and very often needless presents for friends and relatives. This Christmas fell on the time of the soon coming economy recession predicted and consumers, seeing a notable rise in prices as well as credit card interest hike, opted out of spending any little more than they could actually afford.

The sub-prime mortgage crisis and credit card defaulting boom following it have led us to what was foreseen long ago but have nothing done to prevent it. Credit card companies, banks and other big businesses began to incur great losses and in order to keep their finances in good standing, they made the public accountable.

So, it's we who are expected to cover companies' losses in the form of higher prices and exorbitant interest rates. As a response, we cut our spending.

Good news is that the level of income remains the same. But it doesn't help when prices might go up as much as 20% a year and credit card rates are likely to hike any moment the decision occurs to the lender.

On the one hand, the position of banks and credit companies is understandable. Some of them, Citigroup, for example, have made huge write-offs, or incurred losses, and they need funds inflow.

On the other hand, numerous credit card defaults and the lost of revenues are the natural result of the companies' predatory policies and they unfairly try to correct their mistake by raising interest and tightening credit available.

But inflation and credit squeeze is a general phenomenon and cannot be extended onto only a specified group of consumers, those whose income amounts to millions of dollars and who will continue using their credit card or pay cash whenever needed.

The inflation affects everyone, including the lowest income households, and when consumer spending cut achieves its highest point, the economic slump will come. So, what do central banks and governments of in America and Europe suggest?

American credit issuers are expected to come up with a lower APR on credit cards - that at least will allow customers to breathe a sigh of relief for a moment and resume paying credit card monthly minimum.

The Federal Reserve System has already reduced it fed funds rate, with prime rate following. Creditworthy customers with favorable and long payment history will have the best APRs, lowest costs and attractive rewards, while people with big balances will have a chance to do away with them.

Bankers and politicians are determined to do whatever it takes them to minimize the risk of a serious economic slump, meanwhile sharing the losses onto the public. Their main task is to draw a veil on how they are doing it and the interest rate reduction is an effective, though temporary tool to do it.

A wise customer may also well benefit from the reduction, though. Applying for a new, lower interest credit card or doing away with the overhanging debt might be a smart policy in the prevalent circumstances.