Why Is Credit Card Use Increasing?
However, we can't resist continuing to urge some caution. The impact of tax rises and government spending cuts that may result from the -- at the time of writing -- still current sequester are yet to be felt. And, even if that's been resolved by the time you read this, we're due another fiscal crisis in May, when the debt ceiling expires. Worse, there's little doubt there'll be another, similar budgetary issue along a few months later. Few expect these to undermine completely the still-sluggish recovery, but they sure could take some of the shine off it.
Credit card rates likely to rise
More worrying for us is the potential for a sharp rise in credit card rates, especially now so many such products have variable rates. These are, at least in part, tied to wider interest rates, which are generally expected to increase, possibly sharply, once the recovery gains traction, and the Fed stops pumping money into the economy.
When, in February, Andy Kessler talked about this in The Wall Street Journal (registration/subscription may be required), he said that "everyone on Wall Street knows interest rates will go up," and called the prospect a sword of Damocles.
Thanks to the Credit CARD Act of 2009, any hike in credit card rates shouldn't -- unless you're at least two months behind with your payments -- affect existing balances on your cards. But they are likely to make any future borrowing more -- maybe much more -- expensive. And if, once that happens, you suddenly need to use your cards to get you out of an unexpected mess, you may be very happy if your then-existing balances are low.Indeed, none of this good economic news detracts one bit from Barbara Marquand's excellent recent advice on this site, 3 reasons to keep credit card balances low.
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