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Increased credit use may not be good news

Readers in the Washington, D.C., area may be aware the use of revolving credit is on the rise. In fact, there was a surge of slightly over 10 percent in consumer debt during April. This is a large spike after many years of decline and modest increases in the years since the housing crisis. Some experts feel this is good news that will create an economic boom, while others feel it may actually lead to another credit bubble.

People may be using more revolving credit, but it may not signal economic recovery as much as it shows that family income is flat, and credit is used for necessities such as gas and food. Also contributing to the increase in debt are college loans, car loans and emergency loans to pay bills.

There are steps consumers can take to avoid piling up debt. The steps include spending less, using cash, only making affordable large purchases and always making payments that are above the minimum due. To accomplish these goals, consumers should be aware of how long it will take to pay off a balance making minimum payments. They should take advantage of offers for balance transfers to low or no interest cards and be careful of offers that claim to help consumers out of debt because they are often scams.

It is still difficult for many families to pay for day-to-day expenses out of their paychecks, so they turn to credit cards to fill the gaps. If the debt can be managed responsibly, it can be a useful way to help in, for example, an unexpected emergency. However, long-term reliance on such a habit can lead to debts that are unmanageable. It is certainly wise to try and pay off credit debt, but if that becomes impossible, it may be necessary to investigate the bankruptcy process.

Source: Minyanville, "Credit Card, Household Debt May Be the Next Bubble to Burst: How to Protect Yourself", Carol Kopp, June 26, 2014

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