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CHICAGO
- Only 18 months ago,
Wade Thomas
had credit card debt of
$16,480
on his 20 credit, retail and gas cards.
But when
the
Austin, Texas
, travel planner lost his job in
July 2009
at a company for which he had worked for 11 years, he
decided to use some of his severance package to reduce
his debt.
Today,
Thomas' combined credit card balance stands at
$2,550
.
"I
only charge what I'm able to pay off in a sensible
duration," typically a month or two, said Thomas,
32, who found work in April. He uses his Discover card
most often because it offers a percentage of cash back
on purchases.
Credit
card debt per borrower is falling, according to credit
reporting firm TransUnion. But consumers' resolve will
continue to be tested. That's because Discover, Target,
Chase and others are dialing up their card rewards
programs, introducing new products or boosting marketing
to get consumers to use plastic more often.
Riverwoods, Ill
-based
Discover Financial Services
last month said its third-quarter marketing expense will
likely be at its highest level since the third quarter
of 2008.
"The
biggest opportunity is from our current card member
base, because we've got about a quarter of U.S.
households who have a Discover card, and we don't have a
quarter of the market in spending and loans," CEO
David Nelms
said last month.
On
July 1
, Chase's "Ultimate Rewards" program launched
a national ad campaign touting the benefits of its
credit and debit cards.
And last
month,
Target Corp.
announced that this fall shoppers will receive a 5
percent discount each day they use the retailer's
Redcards, including the Target credit card and Target
check card. The Target credit card currently carries an
annual interest rate of 25.2 percent.
But don't
expect
Rodger Malcolm Mitchell
, of
Wilmette, Ill.
, to apply for one. The retired business owner and
economist said he never carries a balance on his
MasterCard
, a United Airlines Mileage Plus Visa or
Costco
-branded
American Express
, which offers discounts everywhere.
Mitchell,
75, prefers membership cards over retail-branded credit
cards.
"Membership
cards do essentially the same thing with less
hassle," said Mitchell, who has such discount cards
from grocers Jewel and Dominick's and restaurant group
Lettuce Entertain You. "With a membership card, the
consumer has no need to take on yet another credit card,
which many consumers are reluctant to do."
Because
he's unlikely to apply for retail cards, he avoids
shopping at those stores because he knows he's not
getting the special discounts that their card members
get.
Still,
some consumers find themselves using credit cards out of
necessity.
"I'm
using them a lot more," said
Gabi Gregg
, 23, a
Chicago
blogger whose
MasterCard
and Visa have a combined balance of about
$5,000
. Since graduating in
May 2008
from the international relations program at
Massachusetts' Mount Holyoke College
, Gregg has had odd jobs but hasn't found steady
employment.
"So
when I don't have the cash, I rely on credit cards, and
that way I don't have to pay it all at once, even though
I know it's not the smartest thing to do," said the
author of the "Young Fat & Fabulous" blog.
Gregg is
one of 20 finalists nationally for the
MTV
and AmEx Zync card's "Follow Me: The Search for the
First MTV TJ," or Twitter jockey. The winner gets a
one-year contract with
MTV
that pays
$100,000
.
"That
would help me pay down my debt," Gregg said.
On
Twitter, where her handle is Gabifresh, she suggested
that if her 4,400 followers each sent her
$1
, she'd be well on her way to paying off her credit card
debt. Her mother also helps with payments occasionally.
The
American Express
and
MasterCard
of
David and Laura Eikenmeyer
also are getting swiped more often these days as the
couple prepares for the September opening of their
Urban Child Academy
in
Chicago
.
David Eikenmeyer
declined to divulge their credit card balances, only to
say they're up over a year ago because "it's an
expensive project."
The
$1.5 million
venture, which includes extensive renovations to a
three-story building, is also being financed with bank
loans from Chase and
ING
as well as savings.
David Eikenmeyer
is a lawyer with a master's in business administration,
and
Laura Eikenmeyer
has a doctorate from Loyola in educational psychology.
"This
is a long-running dream of hers,"
David Eikenmeyer
said of
Laura Eikenmeyer
wanting to open the preschool that will accommodate up
to 45 children ages 15 months to 5 years. "I don't
know if it's ever a safe time to start any business, but
I know there's a big need for child care in the
area."
Ian Halpin
, a real estate broker with
Jameson Real Estate
in
Chicago
, said he has cut back on using his credit cards to
reduce his debt.
He has
two credit cards,
Citibusiness
and
Bank of America
, and one store card, World Market, which he
occasionally uses to buy staging materials and furniture
for his real estate listings. Halpin expects to have the
remaining
$1,100
balance on his
Bank of America
card — it was about
$2,500
at the start of the year — paid off within four
months.
"I'm
just not going to pay high rates when I have the cash in
the bank to pay for purchases," Halpin, 40, said.
His
Bank of America
card carries an interest rate of more than 25 percent,
Halpin said. He got his Citi rate lowered to 5 percent,
but says it'll rise again if he makes purchases.
The
average interest rate assessed on bank credit cards in
the first quarter was 14.67 percent.
Consumers
have cut their levels of outstanding revolving debt,
which consists overwhelmingly of credit cards, by an
annualized, seasonally adjusted rate of 10.5 percent in
May, the Federal Reserve reported Thursday. Revolving
credit is a line of credit allowing consumers to pay all
or part of an outstanding balance, and, as the balance
is paid, it becomes available to spend again as credit.
But it's
not known how much debt banks or merchants will charge
off, or basically remove from their books because
they've deemed it uncollectable. The first quarter's
10.1 percent charge-off rate, for example, matched the
highest level over the last 25 years.
In the
first quarter, about 40 percent of the decline in credit
card debt was due to charge-offs, Cardhub.com said. And
though consumers did pay down
$36 billion
in credit card debt in the first quarter, that's still
23 percent less than they repaid a year earlier, it
said.
Some debt
vanishes in other ways. Consumer bankruptcy filings
nationwide are up 14 percent over the same period a year
ago, according to the
American Bankruptcy Institute
. The bankruptcy process cancels many debts.
Also,
lenders have been stingier about the levels of credit
they grant, giving consumers less rope to get in over
their heads. New credit card limits from banks are 40
percent of what they were in 2006,
Equifax
, which has credit files on nearly 200 million U.S.
consumers, said last month.
All those
factors suggest there is less credit in the system,
Equifax
and others say.
But some
expect that to change with lenders loosening up more
credit because delinquency rates have been falling.
"They
believe that losses have peaked, and, therefore, moving
forward the credit losses you can expect from new
consumers would be less than what they've seen so
far," said
Odysseas Papadimitriou
, a former Capital One executive who is CEO of credit
card research Web site Cardhub.com.
"If
you're seeing delinquency rates going up, you never know
when it's going to end, but seeing it go down you can
feel more confident that the worst is behind us."
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