Credit card use continues to decline. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Use of credit cards is beginning to trail off as more people start preferring to use cash. Fewer people are willing to go into debt and less willing to borrow money for purchases by using a credit card. Card use has been declining for some time, and higher interest rates and fees make credit cards less attractive to the cost conscious.

Major credit bureau notes decline in credit card use

Credit bureau TransUnion has noted a decline in the use of general purpose credit cards, according to Daily Finance. The credit rating bureau asserted in a recently released study that nearly 8 million people quit using a general purpose credit card, the kind normally issued by a bank. The number of people who either don’t have or don’t use a credit card now is more than 78 million, according to TransUnion. TransUnion also noted that credit card delinquencies declined by 9.8 percent during the third quarter of 2010. TransUnion credit rating bureau compiles data used in determining a persons’ credit score.

Federal Reserve notes less credit card use

TransUnion also noted that consumers were still using other forms of credit, such as installment loans, despite the drop in credit card use. The Federal Reserve, according to the Wall Street Journal, observed that credit card use was still declining in February of 2011, but non-revolving credit use was increasing. Revolving credit use, or bank-extended lines of credit and credit cards, declined by $2.71 billion during February 2011. Revolving credit use has only risen once since 2008. Non-revolving credit, or non-mortgage consumer loans such as auto loans or personal loans, increased by more than $10 billion during the month of February. The increase was likely driven by auto sales, which have been increasing steadily for the past few months. The Federal Reserve data indicates that TransUnion’s assessment of declining use of credit cards and continued use of other forms of credit is plausible.

Interest rates and fees on the rise

Because of the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), banks have stricter rules about how they can change interest rates. The rates are not capped, according to Fox News, but the card issuing institution is prohibited from raising interest rates without a certain amount of notice. The average interest rate on credit cards is beginning to slowly rise along with the number of memberships fees that banks are charging customers.

Sources

Daily Finance

TransUnion

Wall Street Journal

Fox News

(Photo: flickr.com)

Whenever you purchase something on credit, whether it’s a product or service, we all find out about the magic of revolving credit. Whether it’s a mortgage, student loan, car payment or credit card payment, you’re paying two different things if you don’t pay off the credit in full immediately: principle and interest. Pay off the former and you’re done. If you’re only paying the latter, your adventure has just begun. It may leave you with a bit more cash til payday in the short run, but you’ll end up having to pay much more in interest charges over the long haul. The reverse – which is the more healthy financial decision – means that while you may find yourself in need of a cash til payday loan once in a while, you’ll be saving much more money over the years.

Go above and beyond

The best way to quickly reduce the principle balance of a loan or line of revolving credit is to make payments that go beyond the minimum monthly payment. This is contrary to what most Americans do, however. Making the minimum payment each month may free up short-term cash for consumers, but it ends up costing much more in the long term, thanks to compounding interest.

But won’t that leave you broke?

Not if you budget properly. As everything is expensive these days, it’s understandable that people aren’t looking to part with additional funds each month. This is typically the kind of thinking that goes into making minimum payments each month on loans and credit. Yet the best way to protect your finances long-term is to pay more than the minimum each month. That way, both interest and principle are paid down more quickly.

Get a jump on your financial future

If getting a jump on those interest and principle balance payments is your goal, some planning is in order. The best way to do this is to look at your budget. Once you’ve taken care of the monthly essentials, see how much you can afford to pay above and beyond the monthly minimum. If you’re used to paying a minimum of, say, $900 per month on your mortgage, try $1,000. With credit cards, try to pay at least double the minimum if you can, as these cards typically bear high interest rates. The more you can pay now, the less you’ll be paying for months and years. Sure, use a cash til payday loan if you need in an emergency… the end result will be all the sweeter. I’ll even give you a magic button you can use to apply for one, in case you’re in that spot right now

[apply_button float="right"]

Like anything else, making radical changes – in this case to your budget – requires a significant adjustment period. Be patient and understand that unexpected expenses do happen. Be flexible; you will have to adjust on the fly. Once you get the hang of it, however, you’ll be well on your way to paying off your major purchases. Paying off a 30-year mortgage or a 48-month car loan before their time ends up costing you much less in the long run. Who wouldn’t want to do that?

Related Video: