As policymakers are fighting with the global financial crisis, some attention is being diverted towards more personal financial issue: credit card debt.
Large levels of credit-card debt have been carried by the Individuals, too expensive houses and gas-guzzling cars also constitute one element of people living beyond their means. Nowadays the amount of credit-card debt has been reduced by the banks; simultaneously the individuals have put all their efforts in saving. Both these scenarios have resulted in a reduction in consumer spending, which creates difficulty in making an economic recovery.
Analyst Meredith Whitney, has recently written in The Wall Street Journal, she notify that banks have reduced available credit-card lines by “nearly $500 billion” in the fourth quarter, 2008. It was estimated by her that in 2009 more than $2 trillion of credit-card lines will be cut off.
It was said by her that there are about $5 trillion in credit-card lines today, with the amount drawn upon about $800 billion. Her numbers argue that the credit-card fiesta is over, this means that now the individuals will not get credit card by just filling out an application form and they will just have one, nowadays individuals have to face a tougher time to get credit-cards or if they get them they may have to face reduced credit lines.
This has happened as some people are so much worried about the current climate that they have started drawing down credit-card money and put that money in the bank so that they can use it in bad times. As pointed out by Brett Arends in his recent story, that this is strategy does not sound good. It is rather expensive for you and you pay more in credit-card interest than you could ever earn through a savings account.
And yet, with banks cutting back on credit-card lines sharply and individuals due to the in secured credit environment are understandably worried about their cash positions, this kind of “negative” savings strategy may become more prevalent. This peculiar approach in building emergency funds is also due to the jobs picture.
Recently, the weekly jobless claims rose 9,000 to 654,000. This indicates that unemployment is increasing at a sharp rate. If the people losses their jobs so rapidly, or they might be having a great fear of keeping a job, it is very challenging to save and rebuild personal balance sheets.
If possible then the individuals should avoid any kind of negative savings strategy. In most cases, before building their savings, individuals should first reduce their expensive credit-card debt. But, as pointed out by Arends, these are unprecedented times, making the personal finance strategies especially tough.
