Hey brother, can you spare a balance transfer?

Megan McArdle on how the financial crisis is changing the state-of-play in the credit card industry:

It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts.

The unusual move underscores how quickly conditions have deteriorated in the credit-card market. The current economic morass was provoked by spiking mortgage defaults. But as the economic crisis widens and unemployment climbs, there is growing concern that credit-card defaults will soar into the stratosphere as well.

"This is a huge paradigm shift," says Curtis Arnold, founder of CardRatings.com, a credit-card review Web site. He says he expects other large companies to follow suit with offers to entice consumers to pay off their balances, as card issuers cope with increasing defaults.

[snip]

I'm hearing a lot of discussion among friends and on finance shows about a new dilemma cash-strapped consumers are facing: pay down credit card debt, or save cash? The answer used to be a slam dunk: with interest rates at 20%, you pay off the cards, and run them up again if you hit some desperate emergency.

But with credit lines being slashed, that's no longer a safe bet; you could pay off your cards, get laid off, and find yourself with no safety net. Then again, if you don't pay off the cards, you're more likely to get your credit line cut.

No one I've talked to has a clear answer other than: cut your spending to the bone and put half what you save thereby into a bank account, the other half into paying down your cards. Which is why all the restaurants in DC seem unusually spacious these days--when I walk by them. Even with no crushing credit card debt, we, too, are eating at home.

The volume of credit card offers filling my mail box has declined markedly and we have been having similar family budget conversations in my home, which is to say that we have never really known any severe financial adversity in our lives in large part due to the easy availability of cheap credit. When Alice & I were both in school, we could simply charge things we needed but didn't have the money to pay for right then. Further, we could get much of it at 0% interest through utilizing revolving balance transfer offers, so there wasn't even a financial penalty for making such a choice.

Thus, we have no charming stories, like my own parents, of eating popcorn for an entire week while awaiting your first paycheck from a new job. However, I'm pretty sure that kind of experience only tends to be considered *charming* when viewed through the long lens of past memory. At the time, I doubt charming was the first word that came to mind.