Consumers Cutting Back on Credit Card Purchases
Reluctant credit card holders clenched their plastic even tighter in May, sending card balances downward, according to data released by the Federal Reverse Board.
Revolving credit, comprised almost entirely of credit card debt, declined at an annualized rate of 3.7%, according to consumer credit data compiled released earlier this month by the Fed.
“For a lot of people, their credit card limits have been reduced and some have found themselves forced to pay down balances without the ability to charge anything else,” says Lee Baker, president of Apex Financial Services Inc. With a national economy built upon consumer spending, a pullback in credit card purchases will slow down short-term economic recovery, while boosting the long-term outlook, Baker says.
“On an individual basis, people are getting their financial house in order, even if in many cases it’s because they were forced to do so,” Baker says.
Signaling consumer uneasiness as the recession lengthens, revolving debt fell to $928 billion, a 3.5% drop from $962 billion, year-over-year. The decline also marks the eighth consecutive month revolving debt ebbed.
Increased frugality among African Americans may also serve to narrow the black-white wealth gap which has widened in recent years, according to a study released by the Fed. For every dollar of wealth held by the typical white family in 2007, a black family has only one dime, compared to 12 cents in 2007.
“This recession will change people’s [saving and spending habits] the same way depression changed people 70 years ago. I think that will help close the wealth gap between African Americans and white,” Baker says.
– Renita Burns