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Credit card use on the rise

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SCOTT JAGOW: People are starting to pile more money on their credit cards. A Federal Reserve study says credit card debt shot up at a 5.7 percent annual rate in June. That’s triple what economists expected. Our Economics Correspondent Chris Farrell says the Fed is partially to blame. All those interest rate hikes have made other kinds of borrowing unappealing.

CHRISS FARRELL: You know, people were borrowing against their homes but now home prices are down a bit, perhaps even down more than just a bit, and so instead of turning to the home equity market, people are using their credit cards more. That’s one interpretation that’s out there. It could also be that, you know, wages aren’t going anywhere. And so it could be people are paying for their vacations on their credit cards because they aren’t getting the raises that they used to, say, in the 1990s.

JAGOW: Now this report also talked all those credit card solicitations we get in the mail . . .

FARRELL: Ah yes.

JAGOW: Those annoying things. But I understand that the Fed argues that there’s some valuable information here.

FARRELL: This is the number that really strikes me: 2005. Six billion credit card solicitations. Alright? Six billion. Your mailbox, that’s why it gets stuffed and we all hate those things, we complain about it, we go ‘What is all this?!’ And what the Fed researchers are saying, it’s a fascinating twist, they’re saying look there’s valuable information in those credit card solicitations that you and I and the people who get them are more sophisticated or knowledgeable about their credit cards an credit card interest rates and fees and what are the terms of credit cards because of those and therefore we may complain about them we may hate them, but they add to our stock of knowledge.

JAGOW: Well if you do look them, there are some little lines of copy in there about what happens if you miss a payment or other things where the credit card companies can really stick it to you. Did the study look at that kind of stuff at all?

FARRELL: It did and what they came out with is that the real dividing line is whether you use a credit card a lot or not. If you use a credit card a lot, people actually were very knowledgeable about a lot of those twists and turns. You know I was thinking about it as I read the study I was thinking about myself before I opted out of the whole system. But I was thinking about myself and I would toss it away, I’d toss it away and every once in a while I’d go, y’know what are they offering? What are these terms? Should I change? And I actually never did but I did look at them every once in a while.

JAGOW: Well you mentioned opting out. I’ll be honest I didn’t even know you could do that. You’re talking about opting out of these solicitations . . .

FARRELL: That’s right.

JAGOW: So, tell me how to do that.

FARRELL: Oh you can do it, go to the federal Trade Commission, they have a section for you that you can opt out of this. Only 20 percent of people do it. I think there’s not enough awareness of the opting out provision, but in a way the market’s working. People who really don’t want these solicitations opt out. Maybe most of us despite complaining about these credits cards we actually don’t mind the flow of information, it’s just that we get a little more than we’re willing to stomach.

JAGOW: Well that’s for sure. Alright Chris thanks.

FARRELL: Thank you.

JAGOW: Chris Farrell is the Marketplace Economics Correspondent. In Los Angeles, I’m Scott Jagow. Thanks for listening and have a great day.

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