Is Fewer Better?

I grew up in the 1970s, and when I got to Debt.com more than a decade ago, I learned something interesting from the Federal Reserve: Only 16% of families back then had a bank-issued credit card.

Today, that’s 73%.

It’s safe to say credit cards are now a necessity. Multiple polls confirm that the average American carries four cards at any one time – although that might start to drop if the latest Wall Street Journal report is accurate.

Last month, the Journal reported that “banks are making credit cards harder to get. They raised qualification requirements for lower-end customers that tend to be at greater risk of missing payments.”

Because of this decision, new credit card openings dipped 5% in the second quarter. That will likely increase during the third quarter and the rest of the year.

Here’s why that's bad news for consumers in the short term, but good news in the long run.

What happens the rest of the year

It doesn’t mean much to mention that Americans owe a total of $1.18 trillion. That’s too big a number to comprehend. This smaller number might be more impactful: According to TransUnion, in May of this year, the average adult owed $6,434 on their various cards.

There’s no data on how many Americans open new cards just to keep their balances afloat. But it’s not uncommon for Debt.com to hear horror stories of people making minimum payments on multiple cards, then opening new ones to stave off financial disaster.

That’s going to become increasingly difficult to do as credit card companies close off the plastic spigot. In fact, one reason they’re tightening requirements is precisely because too many Americans are slipping toward default. If that happens, the issuers get little to nothing back.

So I expect some people are going to be surprised when they apply for new cards and are turned down. It also becomes a self-sustaining feedback loop: The more difficulty cardholders have paying their balances because they can’t get new cards, the more likely issuers will reduce the flow of new cards.

What happens next year

As the current economy teeters between shaky and sturdy – but certainly not bullish – Americans might cut back their spending on their own. But it often takes a national upheaval for that to happen, like it did with the Great Recession or the pandemic.

The problem with a lurching economy is that it’s not enough to scare people to stop charging up their credit cards. During the recession and pandemic, credit card spending plummeted – before rebounding right after the worst had passed.

These days, however, our purchasing power has stagnated even as our debts keep growing. This is especially true for credit cards. With the average interest rate almost 25%, that means you’re quite literally handing over $1 for every $4 you charge. Falling behind is almost a foregone conclusion.

If current trends hold, I expect to see more credit card debt, more delinquencies, and more defaults. There’s only one silver lining.

What should happen right now

If credit card issuers dole out fewer cards, and if consumers start to max out the cards they have, my hope is that they seek out real solutions – which will lead them straight to debt-solutions companies like Debt.com.

I understand why so many people try to get out of debt by signing up for more credit cards. It defies logic, but it’s a human response. We don’t want to admit we need help. We want to solve the problems we created.

But personal debt is complicated, and professional help is a proven solution. It just may be that when one door closes – in this case, easy credit – another door opens. That’s the door to Debt.com.