Americans Use Their Credit Cards More Actively

Even though the days of easy credit are long gone, the statistics show that Americans are more actively spending money on their plastics than before. Some people use them to make large purchases; others consider plastics as the main source of getting money for everyday necessities. According to the Federal Reserve, the credit card debt rose to 6.7% in the first quarter of 2008. Now it amounts to $957.2 billion.

The reasons why credit card use is on the rise are numerous. First of all, homeowners face difficulties to get cash using home equity loans. Some years ago it was the most popular type of a loan. Nowadays it is no longer as widely available as before due to the collapse of subprime mortgage market and the following financial crisis. Being short of cash and having few other credit alternatives to choose, Americans have turned to credit cards to cover living expenses and keep their heads above water.

The other reason is that basic needs are becoming costlier. And higher prices mean more expenses. As a result, the consumers' spending habits have changed. Credit card holders tend to shift away from purchasing luxury items, such as home furnishings, towards everyday necessities, for example gasoline or groceries.

The next reason why people spend more money on their credit cards is simple: there is no reason to carry cash around. Stores, gas stations, cafes, and even the local fast food joints accept credit cards. The trickledown effect doesn't work anymore. People rarely have loose change to pay cash. With most places accepting credit cards or selling items online, there is no need to have cash in your wallet. Nearly all purchases are made with plastics.

Using a credit card can give you many advantages, from the convenience and flexibility of paying with plastic to the ability to make purchases when you are running low on cash. Moreover, beneficial credit card terms, for example cash back rewards programs, help customers to reduce higher costs. You can pay the gas bill with your card, delay payment for a few weeks and accumulate a rebate which can be up to 5%. It will help you to cut down your expenses and fight the impact of inflation. Of course, there is a traditional rule you need to follow to make credit card use beneficial: pay your bill in full every month if you don't want to accumulate interest.

The reverse side of credit card use is not so optimistic. More spending can lead to the increase of credit card debt and to defaults. This consequence is already felt by a lot of Americans. The delinquency rates rose to 4.53% during February, which is a 4-year high. People spend more on their credit card bills, so they have less money to spend on their own needs. As a result, they use credit cards more and accumulate more debt.

If you want to avoid this vicious circle, be careful. If you feel that you are falling behind, do all you can to reduce credit card expenses. Always make on time payments, even if you can pay only the minimum due. That will help you to stay afloat and avoid defaults or bankruptcy.