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Credit Card Use Slows as Income Inches Up

Recent consumer reports indicate there was a slight shift among Americans and their approach toward debt — and it seems to be affecting economic growth.

According to a July 2012 U.S. Federal Reserve report, despite a recent increase in American earnings, credit card usage was down and credit card debt fell $3.7 billion to $865 billion in June. People are relying less on credit cards to make ends meet than they did when the Great Recession began five years ago.

Economists theorize this drop in numbers indicates Americans may be wary of their financial future. Consumers, they say, are being cautious during a slow market and high unemployment about spending their hard-earned dollars while also making an effort to pay off debt. Money spent on household expenses, it is assumed, is mostly coming from current incomes.

Incomes Rise, but Spending Flat

According to a report released by the Commerce Department, American income rose half a percent in June from the prior month. That means incomes are up 3.5 percent from June 2011. At the same time, however, consumer spending did not change to reflect the increased income. Many economists blame this guarded spending on lack of consumer confidence and a wavering job market.

While 163,000 jobs were added to the American market in July, the most seen in five months, there simply weren’t enough positions being created quickly enough to make a dent in the unemployment rate. Fear of unemployment changes consumer confidence, which, in turn, can make businesses cautious about adding new employees to the payroll.

For the past 16 quarters, household debt, comprised mostly of mortgages and home equity lines of credit, has declined significantly from $13.8 trillion in 2008 to $12.9 trillion in 2012. Some of that debt, however, was reduced as the result of defaulted loans such as foreclosures.

Auto Loans and Education Loans Still Popular

At the same time, according to the Federal Reserve, consumer borrowing increased $6.5 billion from May to June, totaling $2.58 trillion. It’s important to note that Americans, while hesitant to use a revolving charge, are still willing to take on auto debt and education loans. These loans increased by $10.2 billion, to $1.71 trillion in June. Outside of mortgages, student loans account for about 35 percent of all consumer debt. This is a 10 percent increase from just four years ago. The increased need for educational loans, some say, is a reflection of a high unemployment rate, as many people must continue to search for marketable skills in an aggressive and competitive market.

One of the positive aspects of the increase in income with little to no sales growth, economists say, is the way it affects American savings rates. Interest rates increased from 4 percent to 4.4 percent in May.

While economists are optimistic about the market when Americans show an increase in income, the hesitation to spend the money in the marketplace may ultimately affect the country’s economic growth. Consumer spending comprises more than two-thirds of the country’s economic activity. Unless spending increases and more jobs are created in the American market, the country may experience tough economic times ahead.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

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    1. U.S. Consumers Cut Back on Credit Card Use in June. (2012, August 7). Associated Press. Retrieved from
    2. Hardekopf, B. (2012, August 13). Credit Card Use Decreases in June. Retrieved from
    3. Consumer Credit - G.19. Federal Reserve. Retrieved August 24, 2012, from
    4. Isadore, C. (2012, July 31). Spending flat despite jump in income. Retrieved from