The availability of credit has transformed how consumers shop and budget their finances, to the point that the typical consumer now holds a substantial amount in revolving credit. Credit cards allow payment to correspond with consumption. Most people are paid at predictable intervals, usually one to four times per month. Purchases, however, do not always follow a similar pattern. Merchants generally demand the full purchase price up front, even for goods like clothing that are used over a long period of time.
Most people attempt to smooth their consumption over their lifetimes.
That is, people prefer to have a fairly constant stream of disposable income since, at any given time, an additional amount of income is valued less than the amount that came before it. Credit cards allow this consumption smoothing, not only over a lifetime but also in the last few days before each payday. The easy availability of credit is a mixed blessing, however. By allowing consumption smoothing, credit cards make consumers more likely to spend beyond their means. The credit quality cycle, which mirrors the overall economic cycle, has been exaggerated by the easy availability of credit.