Between 1991 and 2001, consumer credit debt almost tripled from $247 billion to $700 billion. It is estimated that today more than 75% of Americans are credit cardholders, owning an average of 4.2 cards per person. Experts predict that by the year 2015, the percentage of the U.S.population owning at least one credit card will grow to 80% (Hogarth, 2002). This study will investigate the various issues related to consumer credit use. Several types of credit cards are available to consumers, such as bankcards, gasoline, travel and entertainment cards, store cards, and affinity cards. Some are limited to a certain chain of stores, while some offer benefits to reward usage.
Credit card company’s segment cardholders into categories characterized by their spending behavior and balance carried forth. Cardholders have also been segmented by academics into two groups, convenient users and the credit users, based on their spending habits. However, a more common method for classifying cardholders is by income. A study by the U.S. Census Bureau found that 96% of consumers who earn more than $100,000 possess at least one credit card, while only 29% of consumers earning less than $10,000 have one. The study also observed a significant correlation between income class and propensity to carry a balance over to the following month (US Census Bureau, 2003).
This paper also will discuss the rising usage of credit cards by college students. The majority of students own multiple cards with few paying off their balances every month and a significant number that have missed payments (Stanford, 1999). Students’ mismanagement of their debt is becoming a huge problem, exacerbated by the fact that most have low paying jobs and rely on credit cards to pay for school-related expenses.
Advantages and disadvantages of credit cards will be looked at in the next section. Advantages include increasing consumer spending power and smoothing consumption. Hidden fees and costs and privacy problems concerning cardholders’ personal information will be addressed as disadvantages. Credit card fraud will be explored, with emphasis on stolen cards, identity theft, and counterfeit and altered cards, and abuses by telemarketers. As both internet commerce and credit fraud grow, people are becoming aware of the need for increased protective measures. Several methods for reducing fraud will be discussed, including initiatives taken by the government and several companies.
Next, this paper will address the matter of who is responsible for the nation’s credit card debt problem. Consumers’ compulsive spending habits and the aggressive marketing schemes used by credit card companies will be focused on. The study will conclude with recommendations for an individual to follow when applying for a credit card. Areas that will be approached include determining beforehand what the interest rate will be, how the balance will be paid off, what the credit limit will be, and establishing the maximum number of card accounts to be open at one time.
