Debit vs. Credit

Credit card debt has been mounting this past year as Americans are sometimes using their credit cards to stay afloat during these turbulent times. As the economy has gotten worse, consumers are often turning to their credit cards and cash advances to make ends meet including bill payments, groceries and energy bills.  Although this is the case in some places, recently many are alternately starting to get scared of the debt that they are accruing and are now doing the exact opposite. They are cutting up their credit cards and deciding to buckle down and only buy what they can afford with cash. By using their debit cards rather than using credit and paying interest, consumers are taking a stand to prevent the downward-spiral of credit card debt.

Since things have been going poorly in the economy, credit card companies are lowering credit card limits across the board due to the fact that people are not using credit as much. The percentage of debit card use is increasing with Visa reporting that over 50% of transactions are debit related; a trend that they have witnessed over the past three periods as well. MasterCard has also noted this trend with an increase of almost 5 percent year-to-year. People are playing it safe now with the thought that they may not be able to afford future credit card payments.

A large percentage of the profit for Visa and MasterCard comes from the use of credit cards. Although they do make some money off of debit purchases, it is most likely not enough to sustain them for the long haul and if this behavior persists, they may find themselves out of business. If this phenomenon continues to occur and people get wise to paying credit card interest, these companies must find other ways to turn a profit during this period. If the economy rebounds, we may still never see a large rise in credit card spending due to fear of the future and what it may bring financially.