Consumer Credit Use is on the Rise Again

We’re back to big spending on credit in the U.S., but are consumers ready for new debt?

For the third year running, credit card use has gained market share versus debit and prepaid card use – this according to a Nilson Report about card spending in 2013. This third consecutive year of increased credit spending can be taken as another sign that consumers are more confident with the market following the downturn in 2008.

According to the report, credit card purchases through merchants totaled $4.530 trillion in the U.S. last year. That’s a 7.8 percent increase versus spending in 2012. So people are turning to their credit cards more often, as well as spending more on credit in stores.

The real question is whether American families are really ready to take on that much debt. According to CreditCards.com, 39 percent of consumers carry a balance from month to month. Charge offs on credit card accounts from the Top 100 providers are at 3.87 percent – this means about 4 in every 100 credit card accounts is written off by the creditor due to nonpayment.

“With the economy still uncertain and the housing marketing only slowly recovering,” Consolidated Credit President Gary Herman notes, “carrying a balance on your credit cards from month to month can be risky. Any change in your situation could spell disaster for your debt load.”

Consolidated Credit offers these tips if you’re starting spend on credit and want to make sure you don’t get into trouble:

  • Review your budget so you can maximize your monthly credit card payments. Paying more than the minimum requirements is key to managing your debt effectively.
  • Use a targeted debt reduction strategy to eliminate your debts strategically if you have more than one card with a balance that carries over from month to month.
  • Keep a close eye on the ratio of your credit card debt payments to your monthly income. Credit card payments should take up no more than ten percent of your income.
  • Use a debt calculator to see how much interest you’ll pay over the life of your debts, so you can plan accordingly and make adjustments as needed.