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Finally, Consumers Are Cutting the Credit Cord

For what seems like ages financial gurus have been lamenting that consumers rely too much on credit cards, and finally people have begun to listen — all it took was a failing economy! The Federal Reserve announced on Tuesday that consumer borrowing fell in August for the first time since 1998 and that was before the crisis worsened in September. Consumer borrowing is defined as loans not secured by real estate, and auto loans and credit cards were the two areas that led to a decline in consumer credit.

Consumer spending, not to be confused with consumer borrowing, makes up two-thirds of total economic activity. Economists are worried this number will fall in the third quarter, something that hasn't happened since 1991. It's a confusing scenario with mixed messages — consumers need to save more in a tough economy, yet when we don't spend and stimulate the economy we risk damaging it further. Once we see improvements that make people more confident in the economy and feel more secure in their jobs, spending will naturally increase, but hopefully consumers have learned that living on credit cards is no longer a viable option.

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RosaDilia RosaDilia 8 years
bchicgirl, I'm in NYC.
cubadog cubadog 8 years
I have not been using credit cards at all in the last 3 months my main objective is to pay them all off. Now when I go shopping if I do not have the cash I do not buy it till I do.
bchicgrl bchicgrl 8 years
This just makes me happy that I don't have credit cards anymore, I pay cash or debit card for everything. Rosa - what state are you in because I'm going to be shopping around for a new car in the next couple of months and I hate to imagine its going to be tougher then it was for me the first time.
Frenched Frenched 8 years
Using credit cards is always a dangerous idea. They're good if you can pay off the balances each month (and take advantage of discounts and rewards points) but if you use it to survive and pay off EVERYTHING, then you'll end up owing everywhere. I'm glad people are cutting back because the way credit cards and loans work is pretty strange. Every time someone gets a loan, the bank really doesn't have that money, it just creates it "out of thin" air. It's really weird how it works.
gumdrops334 gumdrops334 8 years
I am happy to say that I don't use credit cards whatsoever (yet). I hope to keep it that way as long as I possibly can.
RosaDilia RosaDilia 8 years
I'm still spending, I just use cash all the time. I recently financed a new car and let me tell you it wasn't easy. Lots of questions and verifications. Thankfully my credit score and 20% down helped a lot and the loan was financed at 5.7%
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