Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, March 25, 1994                   TAG: 9403250164
SECTION: BUSINESS                    PAGE: B7   EDITION: METRO 
SOURCE: knight-ridder/tribune
DATELINE:                                 LENGTH: Medium

CRAFT CONSUMERS ARE KEEPING UP WITH THEIR CARDS

But they're also making bigger dents in the balance. Credit card debt rose about 16 percent last year, a considerably slower rate than in most of the past decade.

"Clearly consumers feel they love the convenience of the credit card," said Robert McKinley, publisher of the industry newsletter Bankcard Update. "This is also a sign of an improving economy. But ever since the recession, consumers have also demonstrated that they are more sensitive to the debt they're carrying and the cost of servicing that debt."

People also are using the cards more now because of enticements dangled by issuers such as General Motors Corp. and Northwest Airlines.

In recent years, credit cards have been launched that promise everything from discounts on cars to cheap plane tickets to free retirement accounts.

"Consumers tell us they're charging everything now - their groceries, their gas. Everything," McKinley said. "They're doing it to rack up a lot of points."

Last year, consumers charged nearly $422 billion on VISA, MasterCard, Discover and Optima, compared to $338.6 billion a year ago. That 24.6-percent increase is the largest since 1984.

But the $225.2 billion consumers owed card issuers at the end of the year was only about 16 percent above 1992.

"The amount consumers charge, and the amount they roll over and accrue interest charges on are two different things," said McKinley. "In the past, they paralleled each other. As spending went up, so did debt."

That seems to be changing.

For one thing, consumers are doing better now.

Income is growing 3.5 percent faster than it was a year ago, after adjusting for inflation and taxes.

Jobs are growing at a 2 percent rate, twice that of just a year ago.

Surveys show consumers are 18 percent more confident in the economy now than 12 months ago.

"Consumers are stronger financially, which prompts them to use their credit cards more," said David Sowerby, chief economist with Beacon Investment Co. in Ann Arbor, Mich.

But consumers are getting the message that high balances on high-interest plastic cards can sink the best of family budgets, said McKinley.

"The refinancing trend on homes has trickled down to credit cards," he said. "Consumers now take note that they can get a better credit card interest rate by shopping around."

Indeed, a year ago the average standard credit card interest rate was 17.76 percent. Now it's 16.70 percent.

"A lot of people think credit card interest rates are not that important," said Ruth Susswein, executive director of Bankcard Holders of America, a Virginia-based consumer organization.

Not true.

Suppose you had a 19.8-percent credit card with a $20 annual fee. If you owed $2,000 and made the minimum 2-percent monthly payment, it would take 31 years and three months to pay off the bill. In the process, you'd have spent $8,000 on interest alone.

"You essentially can't get out of it," McKinley said. "The only way around is to increase the payments."

That's what he believes many consumers are doing.

If you paid 5 percent of the balance each month and didn't make any new charges, hat $2,000 charge would be paid off in less than six years.

Despite some progress, plenty of credit card holders could still benefit from trading in their high-interest cards for more competitive ones, said Susswein.

"Take advantage of lower rates while you can," she said. "Why waste all this money on interest?"