WSJ: Credit Drought Hampers Economy « Kicking Over My Traces

WSJ: Credit Drought Hampers Economy

A front-page article by Tom Lauricella, Jason Zweig and Conor Dougherty in today’s Wall Street Journal restates what I’ve been saying for months:

Reduced to Tears

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The drop [in consumer debt in August] is a stark demonstration of how banks and other lenders are scaling back, owing to their own exposure to the struggling real-estate market. But it also reflects a reluctance by Americans to hold big loads of debt at a time when the job market remains in bad shape and the value of their homes has fallen.

(Emphasis added.)

If your household is down to one breadwinner (or an approximation through multiple part-timers), you’re not looking to increase your monthly bills by adding another car loan, larding up the credit card or maxing out a home equity line-of-credit. Despite the tears in the eyes of retailers as we enter the holiday shopping season, you’ll likely continue paying down those debts as fast as possible, leading with those with the highest interest rate*.

Given current circumstances, for cash-strapped consumers to act differently would not be “animal spirits”s or “irrational exuberance” — it would just be plain nuts.

* Check your mail for a notice from your credit card company. New rules will shortly take effect that block large interest rate hikes on existing balances. The temptation to jack up rates beforehand is great. Wells Fargo has already given in to temptation, raising its credit card interest rate by 3%. If you’re able, pay off Wells now or shift the balance to a lower-interest card issued by a different company.

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Tags: Business, Consumer debt, Financial services, Money Management, personal finance, Wall Street Journal

This entry was posted on Thursday, October 8th, 2009 at 5:32 am +0000 GMT and is filed under Business, Current Events. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.