Buying things on credit cards has never been easier and consumers have taken advantage. Experian reports that the average household has $16,000+ in debt other than mortgages. Online shopping is ubiquitous; Ebay has just announced that they will be no longer accepting checks and will only accept credit card purchases and PayPal on their fixed priced “auctions”.

The US economy is now 70% driven by consumer spending, and the consequences of the credit crunch has been splashed all over the medial. One negative aspect of using credit instead of cash is that you don’t feel like you’re spending real money. People were using their homes like a piggy bank after the huge increase in sudden equity during the real estate craziness years. When that well has dried up, many people tapped into their remaining credit limits on their credit cards to keep up the frenzy in spending. Now times are changing : inflation is going crazy, and the available credit limits in consumer’s credit cards are tapped out and credit cards are tougher to get. Consumers are being forced to face the music and pull back on spending and the use of credit.

It’s easy to read how much credit standards have tightened, but I have first-hand experience . In 2005, I was the recipient of one of those 100% financing deals. the so-called 80-20 loan: 80% first mortgage and 20% second mortgage, I was self employed AND I still had a bankruptcy on my credit report (the 10 year bad mark fell off in 2005). No questions were asked. Fast forward 2 years: I refinanced my own mortgage. In this situation, where I had plenty of equity, could supply full documentation and had excellent credit. I was hammered with questions over the most minuscule details on my credit report and the process took 8 weeks.

Without seeing actual numbers, the average US citizen can see the changes in spending habits are evident: Starbucks is closing 600 stores because consumers aren’t willing to pony up $4 for a gourmet coffee, coupon clipping sites and advertising for them have enjoyed huge increases. Even one of the giants in the credit card industry, Citibank, was forced to accept a cash infusion from Abu Dhabi last fall.

With a lack of credit to tap into, how much less will consumers spend and how much further effect will it have on the economy? With savings at an all time low, where will they get the money?

Related posts:

1. Employee Theft Rises as Economy Falls Just when small business owners think things cannot get worse...
2. Top Five Reasons to Buy a Home in 2009 The world is in recession, various segments of the economy...
3. Taking the Mystery Out of Credit Card “Minimum Payment” Requirements If you are one of the savvy consumers who pays...
4. Debt Settlement or Pay Off Credit Cards with Remaining Cash? Many people are confused about the best way to handle...
5. Feds Cut Rates, Yet Credit Card Rates Continue Upward?? It’s a classic case of “what is wrong with this...