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New Spending Pattern Unlikely to Last

By Faye Mergel
Published: Friday, December 25th, 2009

Americans have limited their credit card usage last year as they try to provide themselves more cushions against the pressing economy. Many do so out of their own volition, but an equally great number are forced to rid their credit report of card debts because of new lending standards by major creditors. Experts say the practice is doing consumers good, but they also fear that they may soon drift back to their old habits.

New Spending Pattern Unlikely to LastAs recently reported by Mercantor Advisory Group, Americans use their plastics more sparingly than they did in the past. Their mid-year survey shows that majority of the more than 1,000 respondents are shifting from credit to debit cards in order to avoid racking up too much revolving debts on their credit report.

The survey involved consumers carrying plastics that require full payment each month. Forty-seven percent of them carried both debit and credit card, while the rest are carrying either of the two and some charged private-label cards.

Half of all respondents said they now prefer to use their debit cards and 86 percent of them said they are most likely to keep this practice up. The sentiment is stronger among consumers who carry both debit and credit cards, as 61 percent of them are using debit cards more often to trim down card debts on their credit report. Ninety percent of those cardholders said the change will be permanent.

Specialists note that the survey mirrors observations made by the Federal Reserve. The Fed’s most recent credit report revealed that revolving balances, which is largely made up of plastic debts, went down at an annual rate of 9.3 percent this October. The Federal consumer credit report, unlike a personal credit report, documents the overall performance of American consumers every month.

While polled consumers in Mercantor’s survey believe they will continue using debit cards, some experts predict that American cardholders may soon go back to old purchasing behaviors. Finance analyst, Ken Paterson, explained that credit cards contain more rewards than debit, which could draw a lot of consumers back to its side. Additionally, debit provides lesser protection to consumers especially those who often make online purchases. Experts noted that purchases for defective or fraudulent items made through debit can no longer be contested, making it impossible for a cardholder to undo his payment.

Also, some experts believe that the new spending trend could be reverted if consumers regain confidence on their ability to keep their credit report blemish-free while regularly acquiring card debts. They further believe that things could turn around sooner if card issuers become less restricted.

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