Economic Impact of Credit Card Debts

The economic impact of credit card debts hasn’t really been fully understood yet, but if more and more people get into debt then they have to stop spending, and that’s bad news for the economy.

Credit cards are the major instrument used when carrying out many purchases in the United States today, and we’re talking purchases of all sizes. These days people use their credit cards for everything from a loaf of bread to a new TV, they pop out their little plastic friend at the gas station, in restaurants, in stores, does nobody have cash any more? Statistics show that the average household in the United States has credit card debt of more than $9,000. Of course, that doesn’t appear to be such a problem when times are good, but now it’s feared that credit card debt is rising rather faster than the disposable income of many Americans, and that means trouble, oh yes, the slippery slope.

Economic Impact of Credit Card Debts

So what effect does this have on the economy as a whole? Well, generally speaking it is classed as a stimulating factor for the economy if people increase their credit card borrowings to go shopping, it’s what makes the economic world go round, but now there is the increased worry that with more people finding themselves out of their depth in debt, this will actually force them to curtail their spending in the near future.

Bad Credit Card Debt

It has been estimated that around 10% of all credit card debt will fall into the category of "bad debts" and need to be written off. Over $3 billion was reportedly written off during 2009 and this figure is certainly set to rise, so this is going to have a major impact on the rest of the credit card customers. There are number of ways in which credit card companies can try to recoup some of this bad debt:

• Raising the interest rates of credit card balances
• Raising the annual or monthly fees
• Introducing premium features which have a monthly charge

Of course, this is all bad news for credit card customers on the whole, and there are trends which suggest that the number of credit cards will naturally fall in the near future because of the increasing concern over the numbers of bad debts.

All in all, it’s a bad situation which doesn’t really help out anybody. The economy needs people to spend, but if they are spending beyond their means then pretty soon the whole thing, by its nature, comes to a grinding halt.