According to the American Consumer Credit Council, the average American spends $935.00 on Christmas each year and carries an average credit card debt of $8,562.00. The average American also has nine credit cards open. Let’s face it the majority of Americans are in debt. The good folks at Capital One have more rates and plans than donuts in the counter at Tim Horton’s. Most cards now offer a zero percent rate until July of 2012 but then the rate quickly escalates to between 17.9% and 22.9%. Of course, the annual fee is buried in the small print. It can range from $19.00 to $39.00 per year.
Retailers across the country began spreading holiday cheer earlier than usual this year. Elves, snowmen, and reindeer grace the aisles of our supermarkets, department stores, home improvement outlets, shopping malls, and strip malls. These decorations are supposed to lure shoppers into stores amid a weakening job growth, a slumping housing market, burgeoning consumer debt, and growing home mortgage payments. Unfortunately, early indications suggest that American consumers are more attuned to these worrisome economic trends than they are to all the decorative lures and sales bargains.
At one time, debt in America among the middle class was uncommon and few people lived beyond their means. Working class people first took out loans in 1928 that were offered through the National City Bank of New York. These loans were provided with an interest rate of 12%. Loans became even more common place among the middle class in the 1930’s during the Great Depression, when the government urged banks to provide loans for modest houses and cars. After World War II, the U.S. government again stepped in and began to back home loans for veterans, and by 1970, several government agencies began to guarantee home loans. By 1989, nearly 40% of all home loans in the U.S. were backed by the federal government.
1950s-era credit cards were the brainchild of Frank McNamara of New York’s Hamilton Credit Corporation. The purpose of the credit cards was to provide affluent businessmen with a convenient means to make business related purchases. They began being used in 1955 under the name “Diners Club” and were accepted at 27 restaurants. Not wanting to miss out on all the fun, American Express jumped into the credit card game in 1958 and was soon followed by the Bank of America with the creation of the BankAmericard. The BankAmericard grew in popularity and in 1977 became known by the name Visa. Visa is now the most popular credit card in use. Although credit may have at one time been a good thing that enabled the average family to own a home and a car, the use of credit has quickly spiraled out of control. Many people purchase items on credit that they cannot really afford.
This year things may be different. Consumers are cutting back. Outstanding debt has fallen for 13 straight months to a seasonally adjusted $888.1 billion after a peak of $975.2 billion in September 2008. Some 6% of consumers, or 13.5 million people, are still carrying debt from last year’s holiday season according to Consumer Reports. One of the reasons that this year’s sales may be down is that it is estimated that 58 million consumers had their credit card limits reduced between April of 2009 and April 2011 according to FICO, the company that developed credit scores.
The U.S. Census Bureau estimates that there are 1.5 billion credit cards in circulation reflecting a total indebtedness of $2.43 trillion dollars as of May 2011. Credit cards are, no doubt, here to stay. However, like all good things, they must be used in moderation and the holiday season places added stress on the consumer as he or she struggles to match debt with the Christmas season.