Disappointing Credit Card Predictions for 2008

What does PricewaterhouseCoopers see in our future? In a nutshell: hard times.

Blame the housing market and those variable interest sub prime mortgages that have gone horribly wrong. With mortgages resetting at higher rates, more home buyers are going bankrupt and defaulting on their credit card balances. Ever for those home buyers who manage to avoid foreclosure and bankruptcy, times are tough. Inflated mortgage payments mean less expendable income. Less income means more purchases are going onto credit cards, but this isn’t always a good thing. Already, the major credit card issuers have revealed disappointing numbers along with increases in delinquent payments.

Debit cards are another obstacle to credit card spending. As easy as it is to use a debit card for small to medium purchases, many card holders are simply not pulling out their plastic except in times of dire need.

The credit card industry is a business like any other. That is, they need to retain profitability. How can they do that with so many delinquent or defaulted loans, especially with the easy credit and low interest rates card holders have been enjoying lately?

The answer is simple: those rates won’t stay low for long. Credit card companies make their money from the interest payments and fees their card holders pay. When profits are down, they must recoup their losses somehow. Expect card companies to become more selective about who they issue cards to. Rather than just accept a borrower at a higher interest rate, many companies might start rejecting them outright. Current card holders might also notice interest rate hikes. And though many cards don’t charge an annual fee these days, they might return to that practice in the near future.

Other fees have already skyrocketed. Cash withdrawals are one example. The fees for withdrawing cash against your credit card have taken a real hike, making it inadvisable to do such. Also, credit limits might get tighter as card issuers try to minimize their financial risk.

The housing crisis has affected plenty of us, and not just the home buyers who got taken for a ride. The automotive industry, and now the credit card industry, are feeling the effects of the housing market fallout. If you’ve got a credit card, hold on to it and use it wisely. Pay off or pay down your balance to avoid drowning in interest fees in 2008. Reduce the number of cards you have, keeping only those that you find necessary.

And even though card fees might rise and credit limits might shrink, try to keep things in perspective. Used the right way, credit cards are a useful service. If the card companies were to start shutting down, we’d have less competition for our business, and perhaps one less financial service that so many find useful.

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