With the Republican and Democratic conventions behind us and debate season fast approaching, it’s clear by now that both the economy at large and the strength of the nation’s small business community are going to be prominent topics in this year’s presidential narrative all the way through election day. So it seems as good a time as any to check the state of the U.S. credit card landscape.
Credit card trends not only allow us to gauge the country’s progress on the road to financial recovery, but also provide small business owners with valuable insights into consumer spending habits as well as the best ways to use plastic to their advantage.
The most important takeaway for the small business community is that consumer spending is on the rise. U.S. consumers are projected to finish 2012 with a net increase of $43.5 billion in credit card debt, most of which will be incurred during the next few months. Business owners therefore have a unique opportunity to maximize revenue while this boom period lasts.
Consumer spending is being driven by an increase in credit availability, which itself is the product of falling delinquency, charge-off and unemployment rates. More specifically, delinquencies and charge-offs have fallen 20 percent and 37.2 percent, respectively, since last year, and at 8.3 percent, unemployment is continuing its slow but steady decline.
However, as the recent recession taught us, an increasing overreliance on credit card debt can eventually reach a tipping point. If this occurs, spending will surely decline as credit dries up and the attractive initial rewards bonuses and zero percent interest rates that we’ve seen of late fade away.
With less strain on their bottom lines, credit card companies have been able to offer increasingly attractive initial rewards bonuses and zero-percent interest rates, which have helped supercharge consumer spending. Zero-percent balance transfer APRs are now being offered for 38 percent longer than this time last year, and zero percent rates for new purchases have grown nearly 20 percent. Initial rewards bonuses are also up to 39.34 percent more valuable.
Finally, any discussion of the credit card landscape as it relates to small business would be incomplete without mention of the best cards for business owners. It’s merely a common myth that general-consumer credit cards open small business owners up to increased liability, and because general-consumer credit cards offer better protections against arbitrary interest rate increases, I believe the best credit cards for small business funding are the Citi Diamond Preferred Card, which offers zero percent on new purchases for 18 months, and the Slate Card from Chase, which offers zero percent on balance transfers for 15 months with no transfer fee.
A small business rewards credit card like the Capital One Spark Cash for Business, which offers two percent cash back on all purchases, is still the best choice for everyday spending. Small business cards remain valuable for company spending that will be paid off in full by the end of the month due to the fact that they allow you to customize credit limits for employees, consolidate rewards earning, and carefully track spending.
These credit card trends show that while consumer spending habits and attractive credit card offers present a world of opportunity for small business owners in the short-term, we’re still in a fragile environment, so owners should be cautious with their investments and taking on fixed costs that could become liabilities if the economic situation sours.
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