Consumers Cutting Credit Card Usage and Debt on Eve of Reform, First Command Reports

FORT WORTH, Texas — With credit card reform legislation taking effect in February, middle-class Americans are already making important changes in the ways they use their cards with a focus on reducing debt, according to the latest results of the First Command Financial Behaviors Index™.

The Index’s December survey reveals that 32 percent of Americans say they are using their credit cards less than they were a year ago, and only 11 percent of respondents say they have increased their usage of credit cards – continuing a trend toward more responsible finances that has emerged during the recent economic turmoil.

“The consumer protections of the Credit Card Act of 2009 are coming into existence at a time when many Americans have already taken positive steps to ensure their own financial well being,” said Terri Kallsen, CFP® and executive vice president of strategic development at First Command Financial Services, Inc. “Changes in credit card usage are an important indicator of a larger yearning to reduce consumer debt. In effect, many Americans have enacted their own reform program by keeping their cards in their wallets.”

Many Americans who are aware of the credit card reform legislation going into effect in February are making changes to their credit card usage now in ways that attempt to reduce their debt. They are:

• Using their credit card less (22 percent)
• Paying more of their balance each month (15 percent)
• Paying off their balance in full each month (15 percent)
• Permanently paying off all their credit cards (13 percent)

Credit card reform is shaping up as a non-event at First Command Bank, which has built its credit card business on low-rate, no-fee products. David White, president of First Command Bank, said “none of the reforms will affect the terms of our credit card products. Thanks to our affiliation with a financial planning company, we are serving financially-responsible customers with historically low default rates. Since we have lower losses than other card issuers, we can afford to assess lower rates and fees.”

December marks the end of a tumultuous year in which the majority of Americans (61 percent) reported that they noticed potentially costly changes to their credit cards. These changes include:

•     increased interest rates (40 percent)
•     increased late fees (20 percent)
•     decreased credit limits (17 percent)
•     added late fees (11 percent)

“These changes occurred at a time when many Americans were adopting more frugal financial habits, such as reducing spending and cutting debt,” Kallsen said. “The trend toward frugal living continues even as Americans express renewed optimism about the economy.”

In December, 40 percent of survey respondents stated that the economy had hit rock bottom and was on its way to recovery, up strongly from 35 percent in November. In looking at a comparison of Americans’ personal financial situation, 27 percent said they are better off than one year ago, up five points from December 2008. And though 40 percent of Americans say they are worse off than one year ago, that figure represents an eight-point drop from December 2008, when nearly half of respondents reported they were worse off than the previous year.

“This change in consumer confidence corresponds to the economy‘s gradual rebound and expansion from the previous year,” Kallsen said.

About the First Command Financial Behaviors Index™
Compiled by Sentient Decision Science, LLC, the First Command Financial Behaviors Index™ assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 1,000 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 3.1 percent with a 95 percent level of confidence. www.firstcommand.com/research

About Sentient Decision Science, LLC
Sentient Decision Science was commissioned by First Command to compile the Financial Behaviors Index™. Sentient is a full-service market research firm with special vertical expertise within the financial services industry. Sentient specializes in advanced research design and statistical analysis of behavioral and attitudinal data.

About First Command
First Command Financial Services and its subsidiaries, including First Command Bank and First Command Financial Planning, assist American families in their efforts to build wealth, reduce debt and pursue their lifetime financial goals and dreams—focusing on consumer behavior as the first and most powerful determinant of results. Through personalized financial plans that emphasize accumulating wealth while reducing risk, First Command Financial Advisors have established lasting relationships with hundreds of thousands of client families since 1958.