Tuesday, March 10, 2009

Warning: If You Roll Over, You Might Fall Out

CEO Meredith Whitney tells the world that she has calculated a likely 57% contraction in the amount of unsecured credit extended to consumers by the end of 2010. What does that mean? That credit card companies will tighten up your borrowing limit, or refuse to renew accounts.

For those of us who live and pay responsibly, this won't have much of an impact. After all, the credit card companies do make money off of people using their service, and they aren't panicking yet. But if you're living on borrowed money, and rolling over debt from month to month, or from card to card, you could find that your ability to do so suddenly disappears.

When card companies start refusing marginal card-users additional credit, the overdue bills will crash into them like a freeway pileup, each one adding to the carnage as it comes due. If you're in first situation (rolling over debt monthly) and you want to avoid being in the second one (your own personal credit crunch), you should focus on paying down that debt, and put off the extra purchase you've been planning on.

No comments: