NEW YORK – As high interest rates and the subprime mortgage crises continue to put a squeeze on the economy, U.S. consumers are increasingly turning to credit cards to bail them out, according to Mail Monitor, the credit card direct mail tracking service from global market research company Synovate.
“U.S. households now have access to an average of $26,317 of revolving credit on their cards while average incomes are around $60,000,” said Andrew Davidson, vice president of Competitive Tracking Services for Synovate’s U.S. Financial Services Group.
Ratio. “The ratio of available credit to income has been steadily climbing, in line with inflation, over the past four years. However, in the last 12 months, it jumped from 50 percent to 56 percent. This 6 percent increase is more than double the annual rate of inflation and is a direct response to the current economic climate,” he said.
While the housing market cooled and interest rates began to rise, cardholders have been adding to their revolving debt. In turn, credit card issuers have responded by making more credit available, according to Davidson.
“Revolving balances on credit cards are at an all-time high with U.S. households now owing an average of $6,970 up from $5,084 just four years ago,” he added.
In order to access more credit lines, there are now more cards in consumers’ wallets.
“U.S. households now own an average of 2.8 cards compared to 2.4 cards just four years ago,” said Davidson.
Growth. “For a market considered to be saturated, this represents significant growth. Credit card issuers continue to be more and more creative with their offerings and the increase in solicitations for cards promoting loyalty points and/or cash back has led to additional cards in the wallet.”
With U.S. households now having more access to credit than ever before, and more foreclosures on the horizon, the concern is that revolving balances will continue to rise while incomes remain flat.
For households that are already stretched, it may be difficult to free themselves from escalating debt.
However, the recent surprise cut in the federal funds rate will go some way toward alleviating the burden for cardholders as annual percentage rates (APRs), particularly those on variable rate cards, begin to decline.
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