Wary Consumers Cautious Of Increased Credit Card Offers

Though banks are again offering credit cards to risky borrowers, not everyone is biting.

"I will never, ever have another credit card," Carole Carroll, a New Yorker in her fifties working in finance, said. "It's either I have the cash in my hand or I'm moving back in with my mother."

Carole, and her husband Don, were $88,000 in debt before they entered a debt management program and managed to climb clear. But like millions of Americans with less than stellar borrowing history, the Carrolls are still being targeted by credit card companies.

Credit card offers to risky borrowers are surging, according to a report by the New York Times, which found that HSBC, Citigroup, and Discover all mailed out about ten times as many credit card offers this year compared to last year, while Capital One's rate rose to 22 million, a fiftyfold increase.

Approximately 17% of those offers will arrive in the mailboxes of people with damaged credit, up from the 2009 low of 7%, according to the New York Times. And consumers are responding: 4% of this group have sent in applications, 10 times the typical response rate.

Even when Carrolls were struggling with debt, the credit card offers never ceased. "It was funny because I'd walk in the door with credit offers in the mail from downstairs and there'd be a message on the machine saying, 'Where's our money?'"

The Carrolls took a familiar route to financial hardship. Gastric bypass surgeries for both of them, double hip replacement for Carole, job loss on both of their parts, and other ordinary misfortunes led them into over-reliance on credit. Instead of languishing under their debt, they went to Greenpath Debt Solutions and embarked on a budget plan that shaved off their outstanding balance over the next three and a half years.

But just because they're debt-free, doesn't mean they're incautious. "Once you make the adjustment from credit to cash, you don't need to go back," Carole said. "If you don't have the cash, you can't buy it."

Not everyone is quite so adamantly opposed to credit. In fact, according to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, some of her clients feel an extraordinary emotional attachment to their little piece of plastic. "People will hold their Bloomingdales card close to their heart and say, 'I'm going to mi-iss this card!'"

But if some consumers are begrudgingly skipping credit cards, does that mean household balance sheets are finally looking up?

Financial analyst Ed Friedman of Moody's Analytics believes things are in fact looking better. "The speed at which household deleveraging has been occurring, if it keeps up, we'll be back at a ratio of debt to income higher than in the early '90s" he said. Further, he observed, delinquency rates for credit cards and mortgages have been declining for a year.

Consumer behavior in the past few months certainly suggests that people are ready to start spending again. Retail sales in November increased by 0.8 percent, with sales at department stores jumping 2.8%, numbers that caused the National Retail Federation(NRF) to predict that there will be a 3.3% growth in retail sector this November and December from last year, up from their initial 2.3% prediction in early October.

"The industry has seen 5 solid months of growth," Kathy Grannis, a spokesperson for the NRF, said. "Consumers are slowly getting back into discretionary gift giving which is very important in terms of monitoring the state of consumer sentiment." Instead of giving practical gifts like toasters and mittens, sales for items like jewelry and home décor have gone up. She found also that the NRF's surveys indicate that people are cutting back on their credit card usage, opting instead to use debit cards and cash.

Yet a recent study by CardHub told a more ominous tale, finding that Americans accumulated $6.5 billion in credit card debt between July and September, an increase of 11% from the same time last year. Dave Jones, the president of the Association of Independent Consumer Credit Counseling Agencies, finds this recent upswing in spending curious as well. "People are inexplicably spending pretty heavily this holiday season," he said, predicting a spike in clients for his services come January. He speculated that the lull in credit availability has led people to glut on the recent reappearance of credit offers. "For the most part people have been starved for credit," he said.

But the banks may be dealing with a new brand of consumers scarred by their own ventures into debt, and skeptical of the benefits of credit cards.

Melodie Honey, a 58-year-old retired administrative assistant from Long Beach, California, says she gets credit card offers every day, despite the fact that she is still in over $30,000 of debt. After she and her husband went to Consolidated Credit Counseling Services to help them consolidate their debt, the offers for credit began to roll in.

"When money's so tight and you're trying to control your spending, as soon as someone comes along and you need the money, it's hard to not take the money. They make it really hard for honest people," she said. But the rates that the cards offer are 25% and up, she added. "As soon as you take a look at what they're offering you it's no temptation."

Consumers may also fail to realize that offers from the credit card companies are just that--offers pending approval. "People think, 'Oh, I've gotten this offer, it means I'm creditworthy,'" Melinda Opperman, senior vice present at Springboard Nonprofit Consumer Counseling, said. "It's just an offer of credit that upon their doing their deep dive on the credit report, they determine what terms they're going to get."

Perhaps both banks and buyers have learned their lesson. "It seems to me that the banks are well aware that it would not be in their interests to return to 2007," Friedman said. Jones concurred. "I think what were seeing here is that the risk managers at major credit card banks are coming to grips with the new economy and the behavior of the new consumer."

Comments

[Jem Credit Cards]

03:13 PM on 12/20/2010

I feel consumers have the right to be wary about credit card offers however, it is important to remember that credit cards are a key component in the stability of the US economy! Great article!

[UberdanSounds]

01:24 PM on 12/18/2010

You know, everyone keeps saying "Ditch your credit cards!" I'm all for that until I found out how hard it was to get a "decent" loan for a car! My sister & her newlywed husband had the toughest time getting approved to buy a new mattress! Look folks, don't put ALL the blame on credit card companies, because yes they are evil, maniacal beasts. Just remember it takes "2 to Tango". Just because they send you offers, doesn't mean you have to accept them, I shred mine up every week! I already destroyed my credit years ago, so I'm definitely not defending them. Unless you can pay cash for a car, Tv, mattress, etc., then I highly advocate Secured Credit Cards (reports to 3 agencies), or at least PrePaid Debit Cards (but does nothing for your credit except not ruin it). We live in a land of what your Credit Score is. So, if you're never gonna need any type of loan, then sure go ahead use cash or savings. Most people are not that fortunate tho, & now I'm rebuilding my score because eventually I might need to buy something big. If tomorrow Congress passed a law ditching the whole FICO scoring system, then sure I'd say "Awesome!" But, we'd have to have something good replace it, until then your "Credit to Debt Ratio" is your ticket to surviving in this world. I'm only being real.

[Lisa Shields]

10:27 AM on 12/18/2010

We haven't touched plastic in four years.
No one died.
There hasn't been something we needed, that we couldn't save for.
And when you operate on a cash basis, you are far more aware of WHERE your money goes.
I've heard all the arguments about "wise credit use", but it all boils down to paying someone else for your money. The "convenience" factor. We don't shop for groceries at convenience stores, yet we think nothing of giving up 30 percent of our income...so we can purchase something NOW.

If we want to do a favor for the economy, we should use cash---which would drastically reduce bankruptcies and foreclosures.

[Sysaphean]

07:09 PM on 12/17/2010

Banks, this year, have sent out 2.5 billion credit card offers. Not because they are interested in helping consumers, but because their bottom line is suffering. Even worse, 500 million of these offers have gone to those with bad credit, thus attempting to start the credit bubble all over again.

The banks are enemies of humanity and need to be stopped. It is obvious that neither the President or Congress is really serious about standing up to these thug of thugs.

But understand, that this was always part of the Republican supply side plan. Let corporations underpay people, but keep up consumption (and thus corporate profits) by causing them to go into debt. This is what fueled the economies of the 80's, 90, until the 2008 crash. Homes were lost because of this chicanery.

But the credit bubble has burst, homes are in the tank and sinking lower in value. Nothing, I repeat nothing, will bring back this economy until the middle class are once again paid decent wages. Too many people have been burned by the credit merry go round and have gotten off for good, as well they should.

And the Banks? They are busy setting up the next bubble by sending credit card offers to people whom they know have bad credit and will default....just in time for the next bailout. DISGUSTING!

[Steven Churchill]

08:47 AM on 12/18/2010

Sorry, but if you want to lay the blame solely on the Republicans, you are dead wrong. Put the blame where it mostly belongs, on a Democrat controlled Congress and Chris Dodd, Barney Frank and former Senator Barack Obama. Those are the guys who pushed the Fannie and Freddie debacale, along with the Reverend(sic)Jackson.

[alithegreat]

03:43 PM on 12/17/2010

the only people i know who are still using credit cards, or are still interested in credit cards, are people who are not averse to bankruptcy. i predict this credit spending will see the next wave of credit crises in the form of poor old credit card companies who are struggling bc of so many people ditching their debts in bankruptcy court.

personally, i put off buying a house so i could use my savings for the more important purpose of getting me out of revolving, high-interest debt. our next mortgage will be a 15-year, not 30, and like the lady in the article said, if i can't afford to pay cash for it, i can't afford it. IF i ever use any kind of credit again, i'll never pay more than 8% interest, and if the credit-offering agency balks at my terms, i'll just go elsewhere, or pay in cash. or skip it altogether.

i'm through taking whatever the corporations offer, on their terms, with no recourse. from now on, if they want my business, they're going to have to work to earn it bc i neither need, nor want their credit cards.

that said, i do miss the old days of, 'i love it, charge it!' but i'll never go back. the hangover is too much for me.

[twoto2]

01:51 PM on 12/17/2010

The most frighting thing I read in this artical was the statement "extraordinary emotional attachment to their little piece of plastic" as if this debt creating piece of plastic was a best friend or something. It's as if 'THINGS' have taken those people over.

[Sysaphean]

07:13 PM on 12/17/2010

Which is just the way the banks like it. I pay cash. Cold hard cash. If I can't afford it, I don't buy it. Debt is debt, and is never good, despite what many will try and tell you. Unless you are going into hock for something that will produce income, it is never a good idea.

But again, this is all part of supply side economics and a plan and deal hatched with banks back in the 1980's under Ronald Reagan. Underpay the people, but keep consumption up by loaning the people their misappropriated wages at usury interest rates.

Except, like all Ponzi schemes, it works until it doesn't and crashes. That is all that has happened over the past 30 years. It really isn't that hard to see.

[Akhil Khanna]

06:12 AM on 12/17/2010

The population in the developed world are suffering due to the hangover from excessive borrowings from lenders who lent to anyone on the street to maximise their own bonuses.

http://www.marketoracle.co.uk/Article24581.html

The problems have been compounded by Outsourcin­g

http://www­.marketora­cle.co.uk/­Article219­32.html

and Rampant Speculatio­n allowed in all the exchanges.

http://www­.marketora­cle.co.uk/­Article236­62.html

The problems are hereto stay as till date no one in the political arena has even acknowledg­ed the problems let alone find solution to them.

The too big to fail bunch of banksters have a lot of influence on the political class, the rule makers and the rule enforcers due to their enormous purchasing power. So irrespecti­­ve of the position in the government­­, everyone works for the benefit of the banksters.

The rest of the population have to be dumped with lots of problems like unemployme­­nt, high cost of living (thanks to speculatio­­n in commodity exchanges)­­, foreclosur­­es, etc. so that they don’t devote their thoughts to the root of all problems and revolt against the comfortabl­­e arrangemen­­t between the banksters, central bankers and the government­­s.

This too big to fail group has grown more powerful in size and influence in the last two years and is likely to end up being too big to bail bringing down complete economies of countries with them.

[mrcontinental]

06:03 AM on 12/17/2010

Gotta keep the ponzi scheme going somehow lol. The money does not come into existence until someone makes a promise to pay and then only as debt. I hope they never issue another single card to anyone.

[Sysaphean]

07:15 PM on 12/17/2010

They should be outlawed. Then people would have to borrow only for a specific purchase, the way lending was intended, not as a substitute for stolen wages to fatten a CEO's paycheck, or for the wealthy to roll the dice with on Wall Street.

[Aarontastic]

09:01 PM on 12/16/2010

I've never used a credit card in my life, but I keep getting them in the mail anyway. I don't even bother opening them, I just cut them up and throw them away. My position is kind of draconian, but generally, I think it would be a good idea if Americans started to ween themselves off of their collective credit addiction, and started increasing their personal savings rate. This is a recession, after all, fueled by indebtedness.

It's easier said than done, however. That's because the typical American is practically forced into relying on credit--why? because wages in this country have been stagnant for decades, because growth in income has been concentrated at the very top of the economic ladder because of anti-progressive taxing, free trade agreements which provide incentives for outsourcing, automation, unregulated derivatives markets, etc. In other words, capitalists have been creating new wealth for themselves, but not new or higher-paying jobs, and they have simultaneously embarked on cost-cutting endeavors which further push wages and employment down.

Americans need credit because their wages aren't going up, but the cost of living is. They have enough to finance their needs, but for major medical bills, cars, homes, college tuition, and extra consumption the 'plastic' is the only thing that they can turn to, and it leads to a vicious cycle. This is a fundamental flaw in our society that has to be addressed with some serious regulatory, tax, and economic reform.

[Chris Moltisanti]

08:49 PM on 12/16/2010

if it wasn't for credit cards and bank credit and a fractional reserve system over the last 30 years the scape of this country would rival that of any third world nation.

this is a country that has existed and will continue to exist on money that doesn't exist....

[trouble4]

07:54 PM on 12/16/2010

I've been credit card free for 6 years now. If I don't have the cash, I don't buy it.

I'll never own another one. Who needs to pay their outrageous interest rates?

[michelesda]

07:45 PM on 12/16/2010

Getting rid of my credit cards was one of the few smart things I ever did. I've been credit card free for years now, and soon will be debt free, something I never dreamed possible back when I was living on credit cards from paycheck to paycheck.

[Jerome Morrow]

11:27 AM on 12/17/2010

Being debt-free has changed my life. And living without credit cards is actually pretty fun, because so many people think that it's impossible for some reason.

Good luck with your journey and I promise you'll love living a debt-free life. :)

[michelesda]

03:02 PM on 12/17/2010

Here's a question. Some people seem to think that to be debt free is to be a deadbeat, since you aren't contributing to the economy to the fullest extent of your spending needs. However, since you are bound to have only a certain amount of money to spend anyway, i.e., however much you can earn, with or without credit cards, you are not only putting it all back into the economy, but also that much more which you are no longer paying as interest to a credit card company. All you are threatening there is to put the credit card companies out of business, which would be a loss to the economy... of what?

[Sundialsvc4]

07:37 PM on 12/16/2010

The byzantine companies that masquerade as "banks" in this country have had a field-day at the expense of their customers for more than a decade and a half.

Armed with (literally...) trillions of dollars in Bribes during that period of time, they became utterly convinced that the way to fortune and fame was to find yet another way to screw their customers ... and yet another public official who would accept cash (or gold, as the case may be) to let them do it.

But a credit-card remains, undoubtedly, THE MOST EXPENSIVE way to buy money.

Customers, being "human beings," have the capability to observe and to learn. They actually DO understand when they are being robbed, and they DO possess the ability to restructure their affairs in such a way as to avoid it. Forever.

Billions of dollars in bribes are even now being paid to try to persuade legislators that the proper solution to this problem is to eliminate paper currency... but I consider it safe to say (at least for now) that, even though more than $100,000 in bribes have been disbursed during the brief time you have spent reading these paragraphs, "that is still very unlikely to happen." (Cross your fingers.)

[Cashbroker]

07:18 PM on 12/16/2010

We should all just stop, stop using them, stop paying them. Cash is king. Credit is for fools

[LeftonMainSt]

07:45 PM on 12/16/2010

We are a nation of credit. Use your card responsibly.

[HalEBurton]

08:15 PM on 12/16/2010

Wise words. This is a process called disintermediation, removing "no value" or harmful agents from the supply chains in your life.
http://disintermedia8.wordpress.com/disintermediation/

[JPinkerton Snoopington]

07:09 PM on 12/16/2010

that's because when you file chapter 13 you cant get a friggin credit card.

[Sundialsvc4]

07:43 PM on 12/16/2010

So... why do you need one?

You get paid cash. And that is how much cash you have. You apportion it out and leave some left over. The shopping mall stands empty because you certainly do not need to waste your money pretending to emulate a starving teenager who is pretending to emulate a high-fashion model.

You are IN the Great Depression of 2008. You'd better (seriously) learn how to straighten nails so that you can use them again instead of throwing them away. Learn how to buy one bottle of water and keep re-filling it at the tap. Learn how to make your own coffee. (Postum is still cheaper... an acquired taste, yes, but you can acquire it, just like your great-granddaddy did in 1930.)

Don't worry about the banks. They'll hand yet-another box of gold bullion to yet-another group of corrupt Senators and Congressmen and Commissioners and so-forth ... or, upon closer inspection, is it not ACTUALLY a sack of putrid straw that they, Mr. Rumpelstiltskin every one, PROCLAIM TO BE gold? Never mind... they're rich, and you're not.

Straighten your nails. Put your cash in a box. If you bury some in a Mason jar, remember that your GPS is not quite accurate enough to help you find it again. Your great-grandparents were no fools. They faced these financial criminals before, and those criminals are back. Learn grandpa's lessons again, and do it quick.

[Jerome Morrow]

11:28 AM on 12/17/2010

Good. Life without credit cards is wonderful...