The negative impact of credit cards on individuals who don’t use them wisely is well publicized. People who use credit to live above their means or even just to get by are faced sooner or later with the reality of their mounting debt. Some are able to pay down their cards and learn to use them responsibly, but many people go through life beneath the burden of crushing credit card debt. If credit cards can be so bad for individuals, it might follow that they’re also bad for society as a whole. In reality, credit card debt brings both plusses and minuses to society.
While the use of credit can act as a catalyst for consumer spending and economic growth, a disproportionately large amount of credit use can introduce risk into the economy. The inability of consumers to pay back their debt can have serious repercussions on the personal and national level.
Positive Effects of Credit Card Use
In the days before credit cards, consumers had to save money for special purchases or take out a loan, something that would only be done for larger purchases. Credit cards allow us to make purchases before we’ve saved for them, often improving our standard living in the present moment. When people buy now with credit instead of saving up to buy later, businesses receive more revenue and the economy is stimulated. Some people are able to manage debt and use credit cards to their advantage, while others find themselves in financial trouble. No matter how we’re affected as individuals by credit card debt, they can have a very positive affect on the economy.
Negative Effects of Credit Card Debt
The revolving debt of Americans, which includes money owed on credit cards, hit an all-time high of $1 trillion in early 2018. Total credit card debt has been steadily rising since a dip after the Great Recession of the late 2000s. However, this figure includes credit card balances that are paid off in the same month, so it’s not the best measure of credit card debt. Financial experts look more often at credit card delinquency rates as a measure of how many consumers are struggling with debt. The Federal Reserve considers a credit card delinquent if payment is more than 30 days past due. Once a consumer reaches a certain threshold of credit card debt, they are spending so much on interest and minimum payments that they don’t have money for new purchases. When a critical number of consumers are unable to keep up with their debt and default on their credit cards, the overall economy is affected. This was the case during the recent Great Recession.
A Delicate Balancing Act
The debate about whether credit card debt hurts or harms society is ongoing. There seems to be a delicate balance between the amount of debt that stimulates the economy and the amount that fuels a downturn. What is clear is that carrying too much credit card debt is bad for individuals. Using credit cards wisely and keeping debt in control may be a useful element of everyone’s personal financial plan.
- Discover: How Does Credit Card Debt Affect the Economy?
- Federal Reserve. "Consumer Credit - G.19 Consumer Credit Outstanding (Levels)." Accessed Sept. 25, 2020.
- Federal Reserve Bank of New York. "Center for Microeconomic Data." Page 3. Accessed Sept. 28, 2020.
- Experian. "A Look at U.S. Consumer Credit Card Debt." Sept. 28, 2020.
- Federal Reserve. "Consumer Credit - G.19." Accessed Sept. 25, 2020.
- Consumer Financial Protection Bureau. "Data Point: Credit Card Revolvers." Accessed Sept. 28, 2020.
- Charles Schwab & Co. "Good Debt vs. Bad Debt." Accessed Sept. 28, 2020.
Catie Watson spent three decades in the corporate world before becoming a freelance writer. She has an English degree from UC Berkeley and specializes in topics related to personal finance, careers and business.