June 4, 2010. Retrieved online June 7, 2010 from Brook Stockberger, Las Cruces Sun-News
LAS CRUCES — With the economic downturn the past several years, a society that had increasingly been leaning on credit cards found itself relying on plastic to survive the recession.
“People leaned on credit cards definitely,” said Dave Hooker, who owns Shorty’s Food Marts in Las Cruces. “Credit and debit card usage is way up. It looks like we’re going to a cash-less society.”
Las Cruces accountant and financial instructor Vivian Moore teaches classes for people who are going through the foreclosure process. She said that some people have no room to maneuver.
“They feel like they don’t have a choice but to live on credit cards, but they can’t keep up with them,” Moore said.
Still, the situation is improving.
The number of late payments on credit cards dropped to a six-month low in March, according to Fitch Ratings. American Express says more customers are making more than the minimum payment and paying off debt faster. The nation’s outstanding credit card debt has fallen by about $100 billion over the past year.
“We are seeing loan balances shrink … and this is consistent with the industry trend,” The Washington Post reported that American Express Chief Financial Officer Daniel Henry told investors.
Sure, as Reuters reported earlier this year, the number of charge-offs — when a company just eats the uncollected debt and writes the customer off its books — have increased.
…But, ultimately, is all this saving a good thing for the economy? Some experts believe that better saving habits might delay economic recovery because, as people save more in a tough economy, they spend less.
Economists call it the “paradox of thrift.” What’s good for individuals — spending less, saving more — is bad for the economy when everyone does it.
Jim Peach, who teaches economics at New Mexico State University, refers to it as “fallacy of composition.”
“Saving may be very good for me and you as individuals, but the fallacy of composition is: if everybody does it, then we’re not consuming and incomes may be lower,” Peach said.
He said that in the years before the recession, U.S. consumers were spending at a pretty fast clip.
“Now you combine an increase in the savings rate with tighter credit restrictions — plus housing loans and automobile loans are in the same situation — and you have a double hit on consumption,” Peach said. “The question is: ‘How long that will last?’ The honest answer is: ‘No one really knows.'”
Read the Las Cruces Sun-News article.