Do you think Americans are making inroads toward curbing household debt by relying less on credit, and if so, is the trend here to stay?I think it depends on what happens on a societal level during this current downturn. If you talk to people who went through the Great Depression, they learned financial lessons that really stuck with them for their entire life. They didn't go out and buy houses with two mortgages on them, a vacation home, a jet ski and all these things. Thankfully we're not there yet (in an economic depression), so I'd love to see this continue with people becoming more financially savvy. But it remains to be seen, because if interest rates get very low, there's a lot of motivation for people to get out there and start borrowing again.
Do you think a credit card with a low initial limit is a good thing for students and others just starting to establish credit?
Yes, but I think it's a little bit harder to establish your credit when you have a low limit like that because then your debt-to-utilization ratio rears its ugly head pretty severely. As for debt utilization, it is a common misconception that the magic number is 30 percent. You start losing credit score points anytime you go over 10 percent. It's a sliding scale above 10 percent with 30 percent better than 50 percent, etc. And trying to stay under that 10 percent marker can be very difficult. It's $50 a month if you have a card that only has a $500 limit. That's hard. It's not how people think of using credit cards. They think if they have a $500 limit, then they can spend up to $500 on it. Still, I think it's a good solution (lower initial card limit for students and others). Offering credit is a good thing for the system in general, and it's also a good way for people who are new to credit to get established. As you use that account responsibly, you can ask for increases in that limit.
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