Credit Cards Next Big Problem For Consumers

Tomorrow the real GDP numbers are set to be released, with the going estimate being -.5%. The well-known standard states that two quarters of negative GDP equals an official recession (others disagree).  While things are bad now, the pinch on consumer spending is being taken one step further; credit cards are going bye bye.

With defaults increasing banks are getting hit by both mortgages and credit cards. Big Lenders like Bank of America (BAC), American Express (AXP), Citigroup (C), and Capital One (COF) amongst others are now reducing consumer credit limits to lower overall risk.

cutting back nyt

I have already seen one such letter come through the mail for a friend informing them that their $5,000 credit line was being lowered to under $2,000. An over 50% drop in credit essentially over night, and this is happening for tens of thousands of Americans.

There is a lot of speculation that the holiday shopping season is going to be a bust. Unemployment is on the rise, mortgage defaults continue to climb, and now credit card limits are being cut in some cases by over half. Considering consumers and small business make up 80% of economic spending, the holiday season and beyond look pretty grim.

Some must read articles on the matter:

Image Source:
Consumers Feel the Next Crisis: Credit Cards
NYT, October 28, 2008

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