If there’s been a silver lining to the Great Recession and its oh-so-slow recovery it’s this: A smaller number of consumers may be heading toward debt consolidation. That’s because the recession might have taught consumers how important it is to save money and pay off debt. The recession also led to the federal government’s Credit CARD Act of 2009, new legislation that placed stricter regulations on the way credit card companies can operate. Both factors have led to a greater number of consumers who are slowly paying their way out of debt, according to a new study by national credit bureau TransUnion.
Cutting Debt
According to TransUnion’s survey, average consumers have lowered their credit card debt by 11 percent. At the same time, the company says, late payments on credit cards and delinquencies of longer than 90 days have also fallen. This is good news for the average consumer: Consumers with lower levels of credit card debt are far less likely to need to take out debt consolidation loans in the future. And while these loans can help struggling consumers get their debt under control, they’re also pricey. They come with high interest rates and, often, origination fees. They also cause consumers’ credit scores to drop. And in today’s world, no one wants to be saddled with low credit scores. Consumers with low scores will pay higher interest rates on any money that they borrow.
Why Consumers Are Saving
Why are consumers suddenly saving more and needing less help from debt consolidation services? Some economists say that the shock of the Great Recession, and the looming threat of unemployment, has encouraged more consumers to pay down their debt and put away money in case of emergency. The Credit CARD Act may be having an impact, too. The act prevents credit cards from raising interest rates without giving consumers proper notice. It also mandates that credit card companies must mail out their bills far enough ahead of payment due dates to give consumers a chance to make their payments on time. This cuts down on costly late fees, which add on to consumer credit card debt.
Permanent Changes?
Are these changes permanent? Have consumers learned their lessons regarding the importance of saving? Or is this just a temporary thing spurred by the struggling economy? These are questions for which financial analysts don’t yet have answers. After all, U.S. consumers have never been known for their frugal ways in the past. Some financial experts are guessing that once the economic recovery really takes off, consumers will return to their old spending habits. That might mean a greater demand in the future, once again, for debt consolidation loans.