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The recession seems to be taking a back seat as more people pull out their credit cards to pay for everyday items. According to The Christian Science Monitor, consumers racked up a total of $64 billion in credit card debt for the year 2011, and January 2012 has already seen an increase in credit card use.
January normally means a return to less spending, trimming your budget, and putting off big purchases, but more consumers are throwing caution to the wind when it comes to credit card spending. In fact, the payment processing company First Data reports that people are using their credit cards at rates not seen since the pre-recession era.
What has spurred this rise in credit card spending?
Banks have cancelled or severely cut back on their debit card rewards programs, and have even suffered a backlash when they instituted debit card fees. They have also added to and raised the fees for checking and savings accounts, in order to make up for the loss in revenue from the limits placed on swipe fees due to legislation from the Credit CARD Act of 2009. Customers have responded to this by using their credit cards in order to avoid the banking fees, and earn rewards and bonus points connected to their card.
In the past few years, credit card mailings have slowed to a trickle, but you may have noticed a deluge of credit card solicitations appearing in your mailbox recently. Banks are actively courting customers by offering more incentives and bonuses to acquire new applications for credit. They are also attracting customers by offering better deals on balance transfers.
The Chase Slate – No Balance Transfer Fee credit card is offering a limited time promotion that won’t charge you a fee as long as you transfer your balance within the first 30 days of opening the account. For a limited time, The Discover More card – $0 Balance Transfer Fee is a good option for those with excellent credit seeking to transfer their high balances.
Card issuers are once again extending credit to those people who have lower credit scores, thereby making it easier for them to improve their credit history. Obviously, the higher your credit score is, the better the rate you can obtain from the credit card company. However, there are still credit cards for consumers who have less than perfect credit, such as the Capital One Rewards No Hassle Cash Credit Card and Orchard Bank Classic MasterCard.
Recent news reports stating that the economy is improving have given consumers a more optimistic outlook about 2012. As a result, more of us are relaxing our strict budgets and are willing to use plastic again. It is very tempting to spend money using our credit cards, especially with the hope that we might receive a tax refund this year.
Consumers should keep in mind that just because the economy shows signs of recovery, that it doesn’t mean we are out of the woods yet. In order to get the most from your credit cards and avoid debt, consider these tips for wise spending:
- Make a list of every credit card that you have and the amount owed on each one. Add to that the interest rate and fees associated with each card.
- Once you have your list, determine which card has the highest balance and the highest interest rate, as well as the monthly payment required for each.
- Consider transferring your highest balances to a No Transfer Balance Fee credit card, and pay that amount off as quickly as possible, and before the limited time offer ends.
- Keep your debt ratios in balance, and use your credit card to pay for items that you know you will be able to pay off at the end of the month.
- If you can’t pay off your current balances in full, then pay more than the minimum payment, and Pay on Time. This will prevent you from incurring late fees and higher interest charges, not to mention that it keeps your credit history in good shape.
Credit cards are a useful tool for earning points, cash rewards, and other perks, but they must be used prudently and paid off in time to give you the most bang for your buck.
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