CREDIT CARD USE BY AMERICANS DECLINED BY 7 MILLION USERS, USERS CUT OFF OR STOPPED USING THE CARDS DUE TO FEARS OF ECONOMY

Credit card use is on the decline, as millions of Americans cut up their plastic or get cut off by their credit card companies.

In the past year, more than eight million consumers have stopped using credit cards, according to TransUnion, a Chicago-based credit researcher. That means 78 million U.S. consumers do not have credit cards, compared to 70 million last year.

The company said the decline is partly due to "charge-offs in the higher risk segments" and partly because of "more conservative spending in the low-risk segments."

Gerri Detweiler of Credit.com said it is "unprecedented" for consumers to "abandon" their credit cards. "I've been covering this since 1987 and I don't recall numbers like that ever going down," she said. "They've always gone up."

Detweiler said the recession is a major factor. "When people are confident about their financial situation and the economy, they feel more confident about using credit," she said. "When they're scared or nervous about their own economic situation, or the economy in general, then they're more likely to buckle down and avoid debt altogether."

In other signs that consumers are casting off credit, TransUnion said the average U.S. credit card debt fell more than 11% over the past year to $4,964 in the third quarter. In that same time, delinquencies declined by nearly 25%.

It's not just the consumers, said Ben Woolsey, director of marketing and consumer research for Creditcards.com, but also "the knee jerk reaction of the credit card industry to the recession and the credit card act."

He was referring to the Credit Card Accountability, Responsibility and Disclosure Act, which went into effect earlier this year and put a serious cramp on the industry's ability to raise rates and impose fees. As a result, the industry cut off the consumers that it saw as dead weight.

"The recession really drove high credit card losses over the last couple years and the credit card industry reaction was to choke off new credit," said Woolsey. "They were also closing down dormant accounts and accounts that appeared risky."

These new obstacles to the credit card industry are seen as opportunities for other aspects of the economy, such as prepaid debit cards, which have their own host of problems.

For example, on Monday, the reality-show Kardashian sisters canceled their prepaid Kardashian Kard after Connecticut Attorney General Richard Blumenthal questioned the legality of its "pernicious and predatory fees."

Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit, said this growing distaste for credit cards created "one of the fastest growing consumer segments. Consumers who do not have or use bank-issued, general purpose credit cards still have a need for other payment vehicles, a fact which is beginning to attract significant attention from credit and debit providers alike."

The American "credit" availability model was the driving force in the growth of the "American Dream" of owing things that could be bought with credit or on credit.

In the fifties, the "buy here pay here" models involved everything from furniture to cars and it spread as credit agencies were able to develop models of identifying credit worthy consumers who could then be granted credit by sellers of all types of products and eventually unsecured credit through the ubiquitous VISA, MASTERCARD and American Express, etc., and other unsecured cards.

The growth in the American economy can be almost directly traced to the ability to buy on credit, as can be easily seen in other countries which lack availability of credit.

Without credit, the direct spending of only the available cash on hand will have long term implications to the economy.

No credit means no purchases, especially among the low end consumers who tend to need to use credit to allow themselves the availability of products that are beyond their cash availability.

I was surprised to get among the 4-5 catalogs I now get daily to get one from the FINGERHUT catalog folks. Remember them?, they offer a variety of products "on their CREDIT" at inflated prices so that they can absorb the potential credit losses. However, one was able to get an electronic gadget, or TV or other expensive product with new or weak credit ( BUY HERE {PAY HERE MODEL). They still offer the same products on the same business model, and a spokesman said that they are doing just great as more people turn to them to get the things they otherwise may not qualify to buy elsewhere!

Local flea markets report robust business, barter sites are operating more and more sites, and a lot of sellers are just looking to trade for something they need without the need to exchange real money!

It is amazing how the free markets allow the development of such creative ideas.

Recently there was a feature story on how a CRAIGSLIST user, traded and bartered his way from a cell phone to a Porsche! each way along the way he traded with someone who wanted the product he had and was willing to trade!

This will be the way soon, as the government in its infinite wisdom has spent like drunken sailors while forcing banks to reign in the credit of consumers.