smart spending

The upside of the down economy

Learn to rely less on credit

Coupled with the increased savings rate is a drop in consumer spending and credit card use.

On April 7, The Federal Reserve said that credit card borrowing fell by nearly 10 percent in February and, according to its G.19 survey, revolving debt has been declining since the beginning of the fourth quarter of 2008, which suggests people are learning to live on cash and delaying the purchase of new big-ticket items like cars.

Nearly everyone has experienced a tightening of credit, and with credit card companies imposing reduced credit limits on cardholders, consumers are forced to rein in the use of debt. So now is a good time to use these penalizing terms to revise your relationship with your credit card.

Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling in Silver Spring, Md., recommends people track their spending in order to better understand their habits rather than mindlessly pulling out the plastic every time they make a purchase. "That's really no fun, but everyone can commit to 30 days," she says. At the end, you can analyze where you might have the opportunity to save and use less credit.

"Credit should be used as a convenience, not as a lifestyle," Cunningham says. "When we live on a cash basis, we've found that you save about 20 percent," she says. "At the checkout counter, you'll be peeling off cold hard cash," and most people react negatively to that immediate insult to their wallet.

Another good habit to establish while reducing your use of credit cards is to make sure the credit card balance never exceeds 30 percent of your credit limit. "If it does, power-pay that card down first," Cunningham says, "because if you exceed that limit, you can practically watch your credit score drop."

Buy goods and services on sale

Not everyone is feeling the hangover of an abundance of credit, and those who have consistently saved and feel secure in their jobs will find some deals. If you've been putting aside money for a backyard pool, for instance, your patience could be rewarded with cheaper prices on labor and materials.

But even though you can find a great deal on many goods and services, should you do it? Hank Boyd, Tyser teaching fellow at the University of Maryland, says first ask yourself if it's a necessity or a luxury.

America's wheels of capitalism turn on consumer spending, he says, trickling through the economy to affect jobs. But our takeaway from this recession should be a certain amount of prudence when it comes to spending money.

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"If there are certain things you know you need and you can get them on sale, it makes sense to buy," Boyd says. There are bargains out there, and companies are getting competitive in their pricing. Those with the cash literally hold the purse strings, he says.

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