Credit Cards Are Back in Vogue

The slumping housing market is forcing consumers to turn to an unlikely source for financial help. While many experts warn against using credit cards to help make ends meet, many consumers are using them for daily expenses and as their only source for debt consolidation.

Much has been made about our nation's addiction to oil, but the recent housing slump indicates that we're just as addicted to tapping our home equity. During the last few years, as home prices were rising, many consumers didn't give a second thought to tapping their home equity for everything from vacations to college tuition.

When the housing bubble inevitably burst, homeowners were shocked to find that their go-to source of cash had vanished. Consumers have been unable to readjust their spending habits, and have turned to credit cards for a financial bailout.

Credit cards: The final frontier

Becoming over-reliant on credit cards is a surefire recipe for disaster. They carry high interest rates, and can lead to an eventual debt spiral from which escape is nearly impossible. Unfortunately, many consumers have established bad spending habits that they can't seem to shake. As a result, in an ill-advised manner, they've turned to credit cards for an injection of cash.

Perhaps an even more disturbing trend is that many people are using debt consolidation offers from credit cards. The ongoing zero-percent interest balance transfer offer can be extremely enticing to consumers. It allows you to transfer all of your debts to one card where you don't need to pay any interest for an introductory period of six to nine months. Unfortunately, when that period ends, the balance is hit with double-digit interest rates.

A closing window

This type of credit card usage is disturbing, and could lead to some serious short-term problems. Credit card companies, weary of the carnage that's recently taken place in the subprime industry, have become reluctant to extend credit to people whom they consider a financial risk.

If a credit card company sees that a consumer is acquiring increasing debt, they may choose to slash credit limits, or raise interest rates on the balance. Both actions are legal and used as a method to safeguard their companies against increasing risk. For cardholders who are using the credit card for debt consolidation, or as a source of income, this is a recipe for disaster, and may push them into an even deeper hole.

If you find yourself heading down this slippery slope, time is of the essence. You'll need to take a step back and reevaluate your entire financial picture. Carefully analyze all your expenses and your current income. Are there areas you can trim to help make ends meet? Can you move to less expensive lodging, drive a cheaper vehicle, or spend less at the shopping mall?

Any of these measures will help you reduce your dependency on plastic. The sooner you break the addiction, the faster you can get yourself back into good financial shape.