Add the writers at SmartMoney.com, one of the Web’s most trusted sources of financial information, to the growing chorus of financial experts – and debt consolidation providers — wondering if consumers are ready to dust off their credit cards again. In February, of course, consumer credit fell by $11.5 billion, a figure that includes a drop of $9.5 billion in credit card debt. This is the lowest that consumer credit card debt had been since September of 2006. Financial experts, though, aren’t convinced that consumers have truly changed their ways when it comes to how they use credit cards. At least SmartMoney, in a story published April 22, expects that consumers will return to their formerly beloved plastic shortly. This, of course, is news that debt consolidation companies want to hear; the more consumers use their credit cards, the more likely they are to run up their debt, and the more likely they are to need the services of a debt management firm.
Returning To Plastic?
During the recession, consumers purchased fewer items with their credit cards. It was one thing they could control during the economic downturn. But now that the economy is starting to heal, economists are predicting that U.S. consumers will return to their old habits. After all, consumers had gotten used to purchasing big-ticket items such as flat-screen TVs, bedroom sets and home appliances with their credit cards. Once the economy improves enough to restore consumers’ confidence, what’s to prevent them from reverting to their habit of paying for everything with credit? Economists quoted in the SmartMoney story predicted that a rebound in credit usage will mean a strong second quarter for the profits of lenders.
Debt Consolidation Business and Plastic
The debt consolidation business relies largely on consumer spending. After all, if consumers save their money and don’t overextend themselves financially, fewer of them will turn to debt consolidation as a way to manage their debt. It’s in the best interests of debt consolidation companies, then, to see consumers return to their days of spending wildly and simply putting their purchases on their credit cards.
A New Era?
The truth is, though, even if the country is entering a new era of wiser spending – something that is certainly up for debate – debt consolidation services will still have a place. Debt consolidation loans serve as a financial safety net to consumers who’ve lost their jobs or have had their annual incomes slashed. When their income falls, and their debt levels rise, they’ll need an option to stop the collection agencies. Debt consolidation will remain that option for people who are struggling financially.