As the Economic Downturn Picks Up Speed, What Will Happen To Personal Credit?

Like most people, I have more than one credit card. In fact, I have about six credit cards, although I don’t charge on all of them. I might have canceled several of them in the past year, but I was told by a loan officer at my bank that all those unused credit cards make you look better to a lender. Somehow, they represent all the untapped borrowing power you have. It seemed like a strange idea to me, but the whole personal credit thing is a mystery, so I just went along with it. Now, it’s very possible that the banks will cancel some of those unused credit cards of mine, which won’t look good to prospective lenders either. However, since I’m not looking to borrow any money right now (or in the foreseeable future), maybe that doesn’t matter.

What I do have that matters to me, are two credit cards, one that is my “everyday” card, that I use to charge things and strive to pay off in full at the end of each month. The other is a 0% balance card, on which I have a balance that I am paying off in installments. That 0% rate is good until March 2009. Unless some unexpected expense comes along, I will have paid off my balance before March 2009, but unexpected expenses do arise. Last month I had to buy a new laptop. That’s over $900 on my everyday credit card that will have to be paid off when the credit card bill comes. That’s $900+ that could have been applied to the 0% balance card, but now is spoken for. So, given the bad economic times, I find myself asking, suppose I went looking for another 0% balance credit card offer when March 2009 approaches. Will I find one, or will those offers have disappeared?

Although we all have credit cards, I'm not sure that we all understand how credit cards work. I know that I am one of the people that the credit card companies regard as a "deadbeat," because most of the time I pay off my balance in full each month. This is good for me, but the company doesn't make money, so I am not numbered among their favorite customers. Considering how many credit card offers we receive, and how often we are solicited on TV and in print to buy things on credit, it can be easy to lose track of the fact that this is business, not charity. If anyone needed proof of that, the change in the bankruptcy law that made credit card debt harder to discharge ought to be sufficient. The credit cards companies are happy to lure a customer into overspending, but they don't want that debt to disappear in a bankruptcy.

Right now, the media are full of suggestions about how to reduce the load of credit card debt burdening the individual consumer. It's pretty hard to argue with the logic of reducing one's debt load, especially at a time when money is becoming incresingly tight. But what will consumers do if they do need credit? One obvious point is that you need to have established good credit. Another is to keep an eye on your credit limits, which may have been reduced without prior notification. This is more likely to occur if the consumer has made late payments. Of course, missing payments in the current financial climate is an invitation to disaster.

None of this speaks to the question I raised earlier: Will 0% APR balance transfer credit card offers disappear? I just did a Google search, and such offers are still being made at the present time. However, I suspect that these cards will not be issued to just anyone. I have noticed that TV ads for cars that offer the inducement of low-percentage auto loans now qualify this offer with the words, "to well qualified buyers." Given my current financial state, I probably qualify as a well-qualified seeker of a 0% credit card, but I still wonder if these offers will survive into the next year. We'll just have to see.

Caution, Lifestyle Shift Ahead

When I was a child, my parents saved string. They saved everything, from nails and screws and rubber bands, to rags and newspapers. There was a drawer in the kitchen that had little bits of everything in it, because it might come in useful some day, like the wooden spools left over when thread was used up and rubber washers. They re-used paper bags, and clothing was handed down from sibling to sibling, as long as there was wear left in it. They darned socks and patched holes.

In those days, there were people who repaired vacuum cleaners and small appliances, and people got new heels put on their shoes and zippers replaced on their pants and jackets. My mother put leftover bread in the oven to dry it, then broke it up and went over it with the rolling pin to make bread crumbs. She did the same thing with crackers. Nobody wasted anything. We ate leftovers a couple of times a week, and stale bread went into bread dressing, bread pudding, and french toast, which my mother called egg-toast, because it was not sweetened. In the same way, thrifty French and Italian mothers made croutons and panzanella (bread salad). Now we buy croutons and throw stale bread in the garbage. In those days, when people heard the adage "Waste not, want not," they knew exactly what it meant.

That was in the 1950's, and my parents had been through the Great Depression and the Second World War, had experienced joblessness and rationing, and the habit of saving everything had been absorbed into every fiber of their beings. They had victory gardens and canned the harvest. They saved scrap metal for the war effort. They had done without butter and sugar, and experienced the times when people walked everywhere to save the little bit of gasoline they were allotted. Naturally, as times got better, some of these habits went by the board, even for "depression babies" like my parents, but even so, they always were averse to wasting things.

As the present economic crisis worsens, some of the habits of thrift will likely be rediscovered, but the adjustment is likely to be painful, because there are now a couple of generations of people who have no connection to this way of life beyond stories they may have heard from their grandparents. Now people are discussing and writing about parents who have always been overly generous with material things finally having to deal with the economic anxieties of their teenaged children and talk to them about money and inevitable lifestyle changes.

I am not a parent, and, much as some people might not believe it, that was a choice, not an accident. With my upbringing and temperament, I don't think I would have ever been an overly indulgent parent, but I certainly feel for the parents who are having to have these conversations with their children now, because I know they are not talking only about the children making lifestyle changes, but about the lifestyle changes they themselves are having to make, as well. Whether it is the disaster of losing one's job or one's home, or the only somewhat lesser disaster of seeing the value of one's retirement investments diminish daily while the price of everything goes up, everyone is in shock. People are having to teach their children how to save money. At the same time, people are getting rid of gas guzzling cars, insulating their homes, and learning to be more careful with their own money, and governments from the local level to the U.S. Post Office are trimming budgets and making cuts in services.

It seems as if the wheel has turned full circle again. I am much more careful about not wasting food, and I have hit the off-switch on impulse buying. I put fewer routine expenses on my credit card these days. Yesterday, I wrote a check for an oil change and tire rotation, when in the past I would have just handed over my card. I even saved a rubber band today. We're all in this together (except the super-rich and the people who never had anything to begin with), and we're all making lifestyle changes, both large and small. It hurts, but we'll just have to get used to it.