Increases in Consumer Credit Card Debt
Survey shows potential problems for the credit card industry…
Seventeen lenders and credit card issuers were surveyed by the Associated Press about credit card debt in America. The analysis showed a big spike in the number of accounts more than 90 days in arrears - the period when most debt is turned over to collection agencies. Debt rose 18% to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission. Experts say these signs of deterioration are partly a byproduct of the sub prime mortgage crisis and could spell more trouble ahead.
Late payments of 30 days jumped by 26% from 2006 to a total of $17.3 billion. That represented more than 4% of the total outstanding principal balances owed on credit cards issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart. Delinquencies of 90 days or more were up 50%, and defaults, where the lender writes off the debt as uncollectible, surged 18% to $961 million.
Americans who were using the equity in their homes to pay off their credit card debt, simply do not have the same options as home values sink and the ability to refinance disappears. And with new bankruptcy laws, Americans are having a tougher time discharging credit card debt, requiring them to submit to a “means test” to determine if they have any money available to pay their debts. With as little as $100 above the level of necessary expenses for food, clothing, and shelter, they will be required to pay their creditors first.
Credit cards have been one of the few reliable revenue generators for a financial industry battered by the American mortgage collapse and a worldwide credit crunch. Until recently, credit card default rates had been running close to record lows. Even with the recent spike, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties. But if credit problems persist and consumer debt keeps rising - things may start to change for the credit card industry.
January 14th, 2008 at 10:00 pm
[…] may show that consumer spending is holding steady, but some economists are concerned about the increasing level of credit card debt American’s are facing and whether or not they’ll be able to pay it off. Increases in […]