Let's say the total debt of all of your credit cards is about $10,000 - which would put you just about at the average. ... If the credit market remains frozen, then the banks can't borrow money to cover the $4 you put on your credit card at McDonalds this morning. They have no choice but to get you to pay your debt back faster. Let's say that issuers raise the minimum payment from about 4% per month to 6% per month. Just two percentage points. But on your $10,000 debt your monthly payment just went from $400 per month to $600 per month.
If credit becomes more expensive, and the banks want to be paid back more quickly, buyers will defer those purchases. It's easy for most people I know to cut $200 from their monthly credit purchases (even, horror of horrors, stick to a budget for Christmas). If it is hard to pay their debts off when those debts are called it, then the best thing that could happen is to get that wake up call and get out of debt. No, I'm not going to panic that people might have to pay for what they bought, or even make their own breakfast and skip that $4 drive through McD's. I certainly am not going to support a $7,000 per family bailout to make sure people who can't afford it can still get their McD's snack without being inconvenienced.
“If credit becomes more expensive, and the banks want to be paid back more quickly, buyers will defer those purchases.” ~ MathDoc
I agree, but this is his argument:
“...Credit cards have been the fuel behind the extraordinary growth in the US economy which has been largely based upon consumer spending. Hold that thought. ...
“If 100 million families have credit cards, and each of them spends $200 less per month in cash because of the higher minimums, that is $20 billion being kept out of the economy. Every month. Plus whatever people aren’t charging any more.” ~ Rich Galen