Consumers are spending less on necessities but using more bad credit financing, according to a borrower survey from BadCreditx. Borrowing with bad credit credit cards and bad credit or debt consolidation loans increased by 28 percent during fourth quarter 2011.
More Americans need financial relief and are finding it wherever they can.
The borrowing statistics were based on the number of survey respondents with an immediate need for cash. Payday loans and credit card cash advances were two types of financing they used to make ends meet.
With bad credit, the cost of cash advances against a credit card is much higher due to the elevated interest rates.
Some consumers even resorted to bad credit auto financing to purchase a new car during the holidays. Hopefully, they shopped around to find the lowest interest rate available because these are not short-term loans.
Being saddled with high interest charges for four or five years will only worsen an already shaky financial situation. Fortunately, the reduced level of spending in many households should help combat this.
The best way to increase a credit score is to be a conservative spender and pay bills on time. Consumers who use credit responsibly have an easier time raising their score. Those who are struggling should seek professional advice, which may result in the establishment of a debt consolidation plan.
If consumers address debt before it gets out of hand, their credit score may not suffer much.
Experts say it may be two or three years before the economy stabilizes. In the meantime, Americans would be wise to continue restricting their spending. Payday loans and credit card cash advances should be used only during emergencies and saving should be a priority.
By keeping themselves out of debt during the worst of times, consumers will be well-positioned when the economy recovers.
