Unemployment Rates, Credit Card Reform, and Debt:... - Other News

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Credit Card Applications » News » Other » Unemployment Rates, Credit Card Reform, and Debt: Cycle or Coincidence?

Unemployment Rates, Credit Card Reform, and Debt: Cycle or Coincidence?

Unemployment Rates, Credit Card Reform, and Debt: Cycle or Coincidence?
The content is accurate at the time of publication and is subject to change.
This content is not provided by Citi. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the Citi.

The new unemployment figures are out and finallythere is some good news. Unemployment rates dropped to 8.9% in February 2011, which is the lowest it’s been since April 2009. New credit card laws also took effect, causing a decline in credit card approval rates, which Credit-Land.com analysts say have been down 15% since July 2010.

In an interesting twist, however, credit card debt is on the rise. It begs the question, is there some relation between unemployment rates and credit card debt? Or,does the amount of credit card debt have something to do with the new credit card regulations, or something else altogether?

The Unemployment Rate and Spending Cycle

A direct correlation does exist between employment rates and the amount of money that Americans spend. The cycle may work in the opposite direction of what you think, however. As Americans spend more money, this in turn boosts the profits that businesses and companies make.

When businesses and companies make more money, expansion, and the hiring of newemployees is inevitable. Hiring leads to a decrease in the unemployment rate and an additional increase in spending. An increase in spending can lead to higher credit card debt, but so can unemployment.

Unemployment and Credit Card Debt

The millions of Americans that are unemployed and do not have enough savings put away often turn to credit cards to see them through tough economic times. Many Americans are forced to put necessitiesand daily living expenses on their credit cards because it is the only source of “cash” they have. Unfortunately, the cycle takes aturn for the worst because these men and women don’t have any money coming in to pay their credit card bills. This causes them to get further and further into debt with interest to pay as well.

Correlation May be in the Data

Unemployment and credit card debt is a sensation that is sweeping the nation. While it is just as common in one locationas it is another, some cities and states have been hit harder by the changing economy.

The interesting part comes in when you analyze the unemployment rate and the average credit card debt of a specific city or state. For example, consider Miami, Florida. The average credit card debt of a Miamian is $4,555. That makes Miami one of the 25 US cities with the highest amount ofcredit card debt. It is also experiencing a 13% unemployment rate, which is the highest rate of unemployment the city has seen since the recession hit the nation in 2007.

If that wasn’t alarming enough,consider the fact that credit card regulations have also caused the interest rates on credit cards to increase. Using credit cards more frequently and not having the income to pay debts off in fullleads to higher credit card balances. High interest rates also play a factor for this baffling phenomenon.It’s a vicious cycle that can lead to an increase in the overall amount of debt held by Americans.

Whether or not unemployment rates or credit card laws are the cause of the increase in credit card debt is not a conclusion that experts are ready to make. For now, it is in your hands to decide whether there is a connection between one factor and credit card debt, or if in fact it is a vicious circle.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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