Americans Finally Hit the Plastic Wall Head-On

Americans are even now using less plastic, and credit card companies are tightening their belts, too.

The Federal Reserve reports there was $944 billion in total revolving debt out in December. The majority of that amount was from credit cards, which resulted in a seasonally adjusted annualized increase of 2.7 percent.

The seasonally adjusted growth rates were 13.7 percent in November and 11.1 percent in October.

In December, an average of 7.6 percent of credit-card loans were 60 days delinquent or were in default, up from 6.4 percent a year earlier, according to research firm RiskMetrics Group.

"Many Americans don't realize the direct correlation between the need to change their behavior and their income," said Bill Druliner, a credit counselor for GreenPath.

"The longer somebody maintains that lifestyle, the bigger the crash is when it finally comes down to earth," he said.

As the U.S. heads toward a recession, consumers are feeling the pinch. With declining home prices, people are having trouble converting their home equity into cash that could be used for everyday uses.

Discover Financial Services reported that 49 percent of consumers surveyed in January plan to cut their discretionary spending in February. Since September, this was a 10-point jump.

In the past, consumers relied on their credit cards to buy non-essential items such as household appliances, furniture or jewelry.

However, Americans are now turning to their credit cards as their sole source of funding to buy food, gasoline and other everyday items.

Shockingly, Business Week reported this week that Bank of America jacked up its rates on customers with no apparent credit problems — simply because they could. Rates doubled to as high as 28 percent with little warning.

Credit card companies have admitted that an increasing amount of purchases are for basic items, The Wall Street Journal reported. Some companies even encourage such transactions and give the borrowers extra incentives to purchase groceries.

Jennifer Campion, a 39-year-old computer-software instructor in Chandler, Arizona, told The Wall Street Journal that she cut out her daily cup of coffee from Starbucks and decided to stop eating out as much.

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