Though banks are again offering credit cards to risky borrowers, not everyone is biting.
"I will never, ever have another credit card," Carole Carroll, a New Yorker in her fifties working in finance, said. "It's either I have the cash in my hand or I'm moving back in with my mother."
Carole, and her husband Don, were $88,000 in debt before they entered a debt management program and managed to climb clear. But like millions of Americans with less than stellar borrowing history, the Carrolls are still being targeted by credit card companies.
Credit card offers to risky borrowers are surging, according to a report by the New York Times, which found that HSBC, Citigroup, and Discover all mailed out about ten times as many credit card offers this year compared to last year, while Capital One's rate rose to 22 million, a fiftyfold increase.
Approximately 17% of those offers will arrive in the mailboxes of people with damaged credit, up from the 2009 low of 7%, according to the New York Times. And consumers are responding: 4% of this group have sent in applications, 10 times the typical response rate.
Even when Carrolls were struggling with debt, the credit card offers never ceased. "It was funny because I'd walk in the door with credit offers in the mail from downstairs and there'd be a message on the machine saying, 'Where's our money?'"
The Carrolls took a familiar route to financial hardship. Gastric bypass surgeries for both of them, double hip replacement for Carole, job loss on both of their parts, and other ordinary misfortunes led them into over-reliance on credit. Instead of languishing under their debt, they went to Greenpath Debt Solutions and embarked on a budget plan that shaved off their outstanding balance over the next three and a half years.
But just because they're debt-free, doesn't mean they're incautious. "Once you make the adjustment from credit to cash, you don't need to go back," Carole said. "If you don't have the cash, you can't buy it."
Not everyone is quite so adamantly opposed to credit. In fact, according to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, some of her clients feel an extraordinary emotional attachment to their little piece of plastic. "People will hold their Bloomingdales card close to their heart and say, 'I'm going to mi-iss this card!'"
But if some consumers are begrudgingly skipping credit cards, does that mean household balance sheets are finally looking up?
Financial analyst Ed Friedman of Moody's Analytics believes things are in fact looking better. "The speed at which household deleveraging has been occurring, if it keeps up, we'll be back at a ratio of debt to income higher than in the early '90s" he said. Further, he observed, delinquency rates for credit cards and mortgages have been declining for a year.
Consumer behavior in the past few months certainly suggests that people are ready to start spending again. Retail sales in November increased by 0.8 percent, with sales at department stores jumping 2.8%, numbers that caused the National Retail Federation(NRF) to predict that there will be a 3.3% growth in retail sector this November and December from last year, up from their initial 2.3% prediction in early October.
"The industry has seen 5 solid months of growth," Kathy Grannis, a spokesperson for the NRF, said. "Consumers are slowly getting back into discretionary gift giving which is very important in terms of monitoring the state of consumer sentiment." Instead of giving practical gifts like toasters and mittens, sales for items like jewelry and home décor have gone up. She found also that the NRF's surveys indicate that people are cutting back on their credit card usage, opting instead to use debit cards and cash.
Yet a recent study by CardHub told a more ominous tale, finding that Americans accumulated $6.5 billion in credit card debt between July and September, an increase of 11% from the same time last year. Dave Jones, the president of the Association of Independent Consumer Credit Counseling Agencies, finds this recent upswing in spending curious as well. "People are inexplicably spending pretty heavily this holiday season," he said, predicting a spike in clients for his services come January. He speculated that the lull in credit availability has led people to glut on the recent reappearance of credit offers. "For the most part people have been starved for credit," he said.
But the banks may be dealing with a new brand of consumers scarred by their own ventures into debt, and skeptical of the benefits of credit cards.
Melodie Honey, a 58-year-old retired administrative assistant from Long Beach, California, says she gets credit card offers every day, despite the fact that she is still in over $30,000 of debt. After she and her husband went to Consolidated Credit Counseling Services to help them consolidate their debt, the offers for credit began to roll in.
"When money's so tight and you're trying to control your spending, as soon as someone comes along and you need the money, it's hard to not take the money. They make it really hard for honest people," she said. But the rates that the cards offer are 25% and up, she added. "As soon as you take a look at what they're offering you it's no temptation."
Consumers may also fail to realize that offers from the credit card companies are just that--offers pending approval. "People think, 'Oh, I've gotten this offer, it means I'm creditworthy,'" Melinda Opperman, senior vice present at Springboard Nonprofit Consumer Counseling, said. "It's just an offer of credit that upon their doing their deep dive on the credit report, they determine what terms they're going to get."
Perhaps both banks and buyers have learned their lesson. "It seems to me that the banks are well aware that it would not be in their interests to return to 2007," Friedman said. Jones concurred. "I think what were seeing here is that the risk managers at major credit card banks are coming to grips with the new economy and the behavior of the new consumer."