Credit Card Balances Rise as Consumers Charge More

More consumers are saying “charge it” more often, leading to swelling credit card balances as plastic replaces cash in supermarkets, movie theaters and even taxis.

It’s convenient. It’s safe. But buyer beware--debt can grow like a weed if you don’t keep paying off those balances.

“It flies in the face of rising interest rates,” said Robert McKinley, president of RAM Research, a Frederick, Md.-based publisher that tracks credit cards nationwide.

“It’s not just increased spending. It’s a change in the way consumers pay. Five years ago consumers would not have charged groceries to credit cards. Now most medical providers accept cards and, in fact, encourage you to charge it,” McKinley said.

It’s the dawning of the cashless, or at least less-cash, society.

As the sun rose after last Thanksgiving, 1994’s busiest shopping day, consumers charged a record $1.7 billion worth of goods on their Visa and MasterCard credit and debit cards, up 30% from a year earlier. Credit card charges have soared 25.6% over the past year.

But card balances have also grown as merchants everywhere now seem to be saying, “Don’t leave home without it” because it’ll save you a trip to the cash machine, it’s safer than cash and you’ll be rewarded with airline miles, rebates and other goodies.

Plastic is now preferred at more than 12,000 or almost 60% of the nation’s supermarkets because it’s faster than checks, it doesn’t bounce and there’s less cash to stash away.

In 1991, only 500 supermarkets accepted credit cards.

Movie buffs can now order tickets by phone with credit or ATM debit cards and arrive just in time for the show instead of standing in line at the mercy of the weather.

In a trial by McDonald’s Corp., you can even buy a hamburger at some restaurants with an ATM debit card, which immediately deducts the payment from your savings or checking account.

And why not? Studies show consumers spend 30% more when they charge it than when paying cash, McKinley said.

To make plastic even more convenient, Visa, MasterCard and major banks have joined forces to create a prepaid “electronic purse” to replace coins and small bills at vending machines, subways, pay telephones and even parking meters.

MasterCard estimates Americans make more than 237 billion cash purchases totaling $600 billion each year. Of this, 84% involve purchases of less than $20, it said.

Plastic payments boost credit card issuers’ fees and interest income and allow companies to lure consumers with airline miles, rebates on gasoline, clothing, computers and other purchases.

“It makes good sense, although there’s the danger that people could end up revolving grocery debt,” McKinley said.

“The bad news is that (consumer) debt has grown at 12.4% this year. But it’s not growing as fast as it did in the 1980s because consumers are using their cards more responsibly.”

More cardholders try to pay off their monthly balances instead of just carrying them over, leading to fewer delinquencies. In fact, about 40% use their cards just for convenience and pay up by the due date.

But debt-carrying cardholders need to have a payment plan.

“You need to know how soon you are going to pay for it. If you pay within the month there’s no extra cost, but if not, you’re paying more,” said Suzanne Boas, president of the Consumer Credit Counseling Service of Greater Atlanta.