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Seven Signs Americans are Getting Smarter With Credit

Wonder if you'll ever get the hang of paying with and paying off plastic?

You're not alone. Changing times, changing rules and changing interest rates leave a lot of consumers lost when it come to navigating the world of credit cards.

Chalkboard with drawn credit card
CNBC.com
Chalkboard with drawn credit card

Each month, various economic statistics trumpet good and bad news on the average American's personal relationship with plastic. Sometimes simultaneously. But lately there have been a handful of signs that could signal -- even temporarily -- that consumers are getting a lot smarter when it comes to the cards. Here are seven:

1. They're cutting back on 'extras.'
Call summer 2009 the "season of the staycation." Gone are the big vacations financed on credit cards and paid off sometime next year. This year, a large number of Americans are rediscovering happiness in their own backyards.

A June survey by the National Foundation for Credit Counseling (NFCC) found that 83 percent of more than 5,000 people surveyed are either skipping vacations entirely or opting to chill at home. Another 13 percent are choosing less-expensive trips.

"People are tightening their belts and being extremely cautious," says Peggy Cabaniss, past chair of the national board of the National Association of Personal Financial Planners and president of HC Financial Advisors in Lafayette, Calif.. Even people who aren't having financial trouble are being careful, she adds. "Everybody just seems very reluctant to go out and spend," Cabaniss says. "They're scaling back on vacations, they're scaling back on shopping."

2. They're capping the spending.
Consumer spending for this spring is up one-tenth of 1 percent, according to the U.S. Department of Commerce. To put it into perspective, if you spent $1,000 over the winter, you'd spend $1,001 for spring. In other words, no big difference.

A big source of spending money in the past few years was billions in home equity loans, says Paul Merski, senior vice president and chief economist for the Independent Community Bankers of America. "That was a big piece of the economic pie that helped fuel the credit economy." Now that the housing bust has made those dollars unavailable, people are cutting back, he says.

3. They really hate debt.
What's better than job security or money in the bank? Unloading debt, according to your typical consumer.

In July, the NFCC asked consumers what one thing would make them feel more financially secure. The winner hands down? Less debt. Seventy-three percent of the more than 7,000 who responded replied that having less debt was the top factor that would give them some financial peace. Comparatively, only 11 percent mentioned having "more money in savings," and only 4 percent chose "job security."

"This one shocked me," says Gail Cunningham, spokeswoman for the foundation. "All we hear about are job losses and escalating layoffs. I really thought that would be everyone's security blanket."

And this might be one case of debt-worry going too far, says Cabaniss. For most people, money problems start when they lose all or part of an income -- making your job a more dominant indicator of your overall economic health, she says.

But these days debt equals stress. When consumers have debt, they tend to be "overwhelmed" by it, says Cunningham. For a lot of consumers, she says, "debt is that dark cloud that follows you around 24/7." A June 2009 telephone survey by CreditCards.com found that two of three Americans were losing sleep because of financial worries.

4. They're paying off debt.
American consumers aren't just grousing about debt -- they're taking action. In June, Americans paid off $10.3 billion dollars in debt, according to consumer credit statistics from the Federal Reserve. And half of that was revolving debt -- mostly credit cards. What makes it incredible: debt and revolving debt usually go up, not down, says Steven Rick, senior economist with the Credit Union National Association. Instead, Americans "are paying it off as fast as they can," Rick says.

Granted, some of the payoffs could be triggered by changing terms, such as higher minimum payments and lower credit limits. Not to mention that creditors are setting the bar higher for consumers to obtain credit in the first place.

"People have been pulling back on their credit, but credit has become more difficult to get as well," says Merski. "It could be a combination."

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5. They're saving more.

In June, Americans saved an annualized average of 4.6 percent of their disposable incomes, according to figures from the Commerce Department. Last year, personal savings for the total year was 2.7 percent.

What makes this ramped-up savings more poignant: income was down that same month about 1.3 percent, according to department statistics.

"There is a new urge to build up nest eggs," says Merski. "There is a new emphasis on individual savings."

But, he cautions, "it remains to be seen whether this trend will continue." In the late 1980s to the early 1990s, savings rates ranged from 6.5 percent to 8.2 percent of disposable income, according government figures. As the recession started, it hovered around 1 percent. "Now it's starting to climb back up again," Merski says.

The practice of consumers increasing their savings is "consistent with paying down credit card debt and not buying as much," says Cabaniss.

Several financial experts speculate that job uncertainty is one big reason behind the increase in savings. "I think many people are still scared about their jobs and realize they need to be saving because they may lose their jobs," says Cabaniss. "It's an incentive to save up for a rainy day."

Those staycations might also contribute to the surge in June savings rates, says Cunningham. "They've saved the vacation money from the vacation that didn't happen this year," she says.

6. They're learning to haggle.
Two-thirds of Americans have tried bargaining for a better price on something, according to a "Consumer Reports" poll taken this spring. The best part: Most of them succeeded. "I think people have become much more savvy about prices being negotiable,"says Greg Daugherty, executive editor with the magazine.

"Given how many people consider themselves shy, to have a sizable majority of people having the guts to do that is amazing," he says. "I think this economy has caused people to get out of their comfort zones a little bit."

"Even if you're not a haggler by nature, if you try it once and succeed, you'll try again," says Daugherty. "I think this may be one of those things that lives with us after this recession passes."

Let's Make a Deal:

Some of the items Americans have haggled over in the past year, along with the percentage of consumers who scored a better deal:

Leaning to Haggle

Hotel Rooms 83%
Cell Phone Service 81%
Clothing 81%
Airfare 78%
Appliances 75%
Electronics 71%
Furniture 71%
Credit Card Fees 62%
Medical Bills 58%
Source: Consumer Reports Haggling Poll, May 2009

7. They want a better understanding of money and credit.
More than four out of 10 Americans grade their own personal finance skills as a C, D, or F, according to a survey earlier this year by the National Foundation for Credit Counseling. And 80 percent admit they could do better if they could get advice on everyday matters from a professional.

The economic situation has "been a huge wake-up call," says Cunningham. No longer content to turn over complete control of their finances, "consumers are moving back into the drivers seat," she says. While they want professional help, guidance and advice, they also want to understand exactly what's going on with their money. "There's no lack of sound financial information out there," Cunningham says. "It's there at their fingertips, and it's always been there. But now we antipicate [more consumers] reaching out for that information."