How Does Credit Card Debt Affect the Economy?
You may understand how credit card use can help or hurt your own personal finances, but have you ever wondered how credit card debt affects the nation’s economy? The answers may surprise you.
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How the Economy Can Benefit From Credit Card Debt
It’s difficult for consumers to see debt as a good thing, as it means they have an obligation to pay someone out of their future earnings. It can also mean incurring costly interest charges. But credit card debt can actually be a positive thing from the standpoint of the entire economy.
When people make charges to their credit cards, they may be using them as a means to finance purchases that they couldn’t otherwise afford. Because consumers are able to make these purchases, businesses are then generating revenue they might not have received, stimulating the economy.
According to the most recent Gallup survey, 76% of adults in the United States report having at least one credit card, and nearly half of Americans (48%) carry credit card debt. When you consider how these tens of millions of credit card users are able to make purchases just because they have a credit card, it’s easy to see how credit card debt can indicate healthy levels of economic activity. In fact, personal consumer spending accounts for more than two-thirds of the gross domestic product of the U.S. economy.
When Credit Card Debt Hurts the Economy
Undoubtedly, consumers’ ability to finance new purchases can help the economy as a whole, but this effect has it limits.
When cardholders incur too much debt, they end up having less spending ability, which can hurt the economy. Credit card users who carry a balance must also pay interest charges, which can ultimately reduce their ability to make new purchases.
What You Should Do
While economists can debate the positive and negative effects of credit card debt on the U.S. economy, individual cardholders should always make the best choices for their own needs.
By using your credit card responsibly, you can minimize the debt you incur and the interest charges you must pay. Keeping a low level of debt can also help your credit score, while preserving your line of credit for use in the event of an emergency or other unforeseen event.
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While it may be nice to know that credit cards can help the economy, it’s up to you to use your cards in a way that benefits your own household.