Credit Limits Lowered Forcing People to Look to Cash Advances

Consumer borrowing cut by credit card companies yet again

Cash advance loans may have to aid consumers a bit longer since credit card companies are limiting borrowing drastically. According to the AP, “Consumer borrowing plunged in March at the fastest pace in 18 years as Americans put away their credit cards and hoarded cash amid the worst recession in decades.” The Federal Reserve showed that borrowing dropped 5.2% in March, which is the biggest dip since the fall of 1990. In dollars and cents, that means that borrowing is down by approximately $11.1 billion, a drop that hasn’t been seen since 1943.

In response to the recession, the personal savings rate moved up 4.2%. What this tells analysts is that people are spending less and trying desperately to replenish their savings. Consumer spending fell 0.2%. This wouldn’t be so bad if the country weren’t in a recession that needs to be refueled. Consumer spending accounts for approximately 70% of overall economic activity.

The stimulus

Most consumers are waiting the recession out cautiously, hoping the $787 billion stimulus program will work its way through the economy and bring about economic growth. Unfortunately, they are not spending, the very action that could bring the economy to an end sooner. Most consumers are focusing on other things. Anne Radman of Nashville, Tennessee stated, “We don’t have money to spend right now. We are using all our extra money on bills and paying off our credit cards.” Radman is not alone, because many consumers are overwhelmed with bills. They are using cash advance loans like never before. They are penny-pinching like their parents did. They are finding new ways of saving money. Although much of the recession depends on Americans buying again, it doesn’t seem like this will be happening in the near future.

What the experts predict

Most economists predict that Obama’s stimulus of $787 billion is truly what will have to turn the economy around. The stimulus and tax incentives, along with increased government spending will need to boost the market. Many people are being cautious right now making spending the last thing on their minds. The overall attitude is “wait and see” what the government has to offer in terms of solutions to the economy’s problems. This is why a true change is predicted to occur around the end of 2009. By this time, people will have enough time to see how things change and slowly work spending back into their budgets. It also will give people time to see how credit cards will once again be useful to them. This cautious attitude may hamper the economy from immediate growth spurts, but it most likely will be the way people work their way back into normal spending habits.

The good news

The good news is that many retail outlets performed above expectations this past March. Stores like Wal-Mart, T.J. Max and TJX Cos. Inc., all reported sales that were well above projections. Granted revenues were still down due to debt, but it’s a good start to see people slowly putting their money back into the economy. Although some are still relying on cash advances and family lending for funding, people are anticipating getting back to where they were prior to the recession.