More Americans Facing Credit Card Crunch

Unpaid Credit Card Bills Are Rising

(AP)  Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

"Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."

The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.

At the same time, defaults - when lenders essentially give up hope of ever being repaid and write off the debt - rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.

Serious delinquencies also are up sharply: Some of the nation's biggest lenders - including Advanta, GE Money Bank and HSBC - reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors - similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.

Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for U.S. banks, which continue to flood Americans' mailboxes with billions of letters monthly offering easy sign-ups for new plastic.

Even after the recent spike in bad loans, 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 what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans' ability to juggle growing and expensive credit card debt.

The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.

Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.

Many economists expect delinquencies and defaults to rise further after the holiday shopping season.

Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc., cited mounting mortgage problems that began after this summer's subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.

"Credit card quality will continue to erode throughout next year," Zandi said.

Economists also cite America's long-standing attitude that debt - even high-interest credit card debt - is not a big deal.

"The desires of consumers to want, want, want, spend, spend, spend - it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Florida, which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."

Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 - where debts can be wiped out entirely - except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.

Personal finance coaches say the problem is most grave for individuals who are months delinquent or already in default - like Kenneth McGuinness, a postal clerk from Flushing, New York.

His credit card struggles began nine years ago, when he charged his son's college tuition and books. He thought he was being clever: His credit card's 6 percent "teaser" interest rate was lower than the 8.6 percent interest on a college loan.

McGuinness, 61, soon began using Citibank and Chase cards for food, dental work and copays on doctor visits and minor surgeries. Interest rates surged to 30 percent. Now he's $37,000 in debt and plans to file for bankruptcy in February.

"I tried to pay what I could and go after the high-interest accounts first," McGuinness said. "But it just kept getting higher and higher, and with late charges and surcharges I was going backward."

In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.

Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said.

"It's been getting tougher to finance any kind of structured finance - mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.

Capital One Financial Corp. reported that delinquencies and defaults are highest in regions where troubled mortgages are concentrated, including California and Florida.

Among the trusts examined, Bank of America Corp. had the highest delinquency volume, with overdue accounts valued at $5 billion. Bank of America defaults in October were almost 200 percent higher than in October 2006.

A spokesman for Charlotte, North Carolina-based Bank of America declined to comment.

Other trusts - including those linked to Capital One, American Express Co., Discover Financial Services Co. and those containing "branded" cards from Wal-Mart Stores Inc., Home Depot Inc., Lowe's Companies Inc., Target Corp. and Circuit City Stores Inc. - also reported striking increases in year-over-year delinquency and default rates for October. Most banks and other financial institutions holding credit card debt on their own books also reported double-digit increases in delinquencies.

The one exception in October was JPMorgan Chase & Co.'s credit card trust, which reported declines in both delinquencies and defaults. A Chase spokesperson attributed this to its focus on prime borrowers and aggressive account management.

By contrast, Capital One executives told analysts last month that the company projected 2008 write-offs of credit card debt to be at least $4.9 billion. This projection, analysts were told, took into account growing delinquencies and potential effects if the housing market continued its downward slide.

Capital One spokeswoman Julie Rakes said the increase in delinquencies could be due to an accounting change last summer, which shortened the grace period between when statements were issued and the due date.

Capital One also reported that the number of accounts 90 days or more in arrears had increased between October and November. More than 1.2 million of Capital One's 30 million accounts were either delinquent or in default.

Many personal financial coaches expect this trend to accelerate in 2008 - particularly among people who took out untraditional loans whose interest rate has risen, requiring owners to pay mortgages several hundred dollars more than just a year ago.

"You're looking at more and more distress - consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes."

[cavetroll08]

One thing that is overlooked a lot is that President Obama May be trying to have the economy appear good to people before the midterms and next Presidential by creating government funded jobs at the expense of our posterity. Propping up the economy this way may succeed as a political move when two or four years down the road people with new jobs credit Obama (and the left by association) and love him for it. The problem is that it will be phony prosperity because it comes with a several trillion dollar price tag that can only be paid off by deflating the dollar and/or placing a huge burden on future generations.

[usbrit-2009]

Do I detect a budding Nobel Prize in Economics there ttinsley? Great Job.

[usbrit-2009]

libsluvsuvs - even your screenname is an insult to whatever small amount of intelligence you have.

[zoltaric]

And who gets hurt the most AGAIN. Minorities. You can thank George Bush , Cheney and all their cronies for the financial mess this county is in. They sit back and earn Billions by stealing oil and starting wars, while the people who built this country suffer.

When is the government going to do something to help the people out. They are losing their homes to predatory lenders and have to use credit cards to stay alive. Meanwhile all the rich people get tax cuts. How about some tax cuts for the working class and minorities who need it. How can a single mother raise 6 kids, pay for food and day care, And pay mortgage and credit cards? Our government is usless.

Get the neo-cons out. They ruined this country.

[jetranger7]

Whens this News Media going to get down to the real Facts, and start addressing the amount of JOBS that have been lost in this country, adding to the results of this Ridlicious Crisis ! CBS NEWS and others have done a POOR Job addressing this situtation, and investigating the amount of American Jobs lost since 2001, Whats the NEWS Media asleep or just playing DUMB & IGNORANT !!!!

[libsluvsuvs]

Posted by j-whitman at 06:03 PM : Dec 24, 2007
+ report abuse

********

do you even know your parents??

[libsluvsuvs]

now if only you morons who responded to my post would just apply as much tenacity to BEING MORE FINANCIALLY RESPONSIBLE instead of blaming all your failures on whatever administration or corporation or institution then you might be half way better off in life.

BOTTOMLINE..THINK BEFORE YOU SPEND YOU MONEY.

[r9119111]

People can starve and not have adequate housing "living within their means". DUH! We don''''t have true lase-faire, free-enterprise capitalism. What we have is a phony, propped-up economy.

Posted by usadcj at 11:26 PM : Dec 24, 2007


Thank you usadoj. I agree with you because that''s exactly what more and more people are experiencing right now. This phony set-up was accomplished exploiting human greed. When this phony bubble pops, we''ll need more than our seatbelts. That''s not if, but when. The collapse has already begun. Hold on.

[usadcj]

People can starve and not have adequate housing "living within their means". DUH! We don''t have true lase-faire, free-enterprise capitalism. What we have is a phony, propped-up economy.

[payasyougo]

It is fairly simple. If you buy on credit, you are living beyond your means. Just ask any of your grandparents.

[usadcj]

Why are people so stupid? When the economy fails and people have a tough time making ends meet, of course people fall behind on their bills. DUH!

[payasyougo]

People that buy on credit are doing nothing more than reflecting the mechanics of our government. Where was that study that said that 97.2% of pople in deep credit card debt vote democratic?

[j-whitman]

Just say No, & return the credit cards they keep mailing without you asking for them.

[jowand]

Who on the planet does not understand that if you buy on credit, it has to be paid back?

You want to throw millions of dollars away teaching people what they already know but choose to ignore.

Posted by formrusmcsgt at 04:02 PM : Dec 24, 2007

Great point

[j-whitman]

libsluvsuvs,,,,, "does your mom blame bush for giving birth to a whinning idiot??" ----- As a matter of fact, most mothers with any common sense do blame Barbra Bush for giving birth to a whinning idiot.

[libsluvsuvs]

what the liberals are saying is

we need to pass a law to make sure people spend our wisely..and they would justify that with "the founding fathers wanted it that way"

[mh4cbs1]

A Christmas message from George Bush and *** Cheney:

In this Christmas season, let us not forget the teachings of Jesus:

Do ''''shock and awe'''' unto others by unleashing all manner of death and destruction, under pretext of lies, lest our imagined "enemies" might someday possible cause us harm (or plan to cause us harm).

Merry Christmas to Haliburton, Blackwater and the rest of the War Industry, for you will receive $686 BILLION next year as a gift from the US taxpayers, who have been duped by the NeoCon fear-mongering.

God Bless America! (and the rest can go to hell if they don''''t do as we wish)

[libsluvsuvs]

Posted by MCVet at 04:26 PM : Dec 24, 2007
+ report abuse

*********

does your mom blame bush for giving birth to a whinning idiot??

[mcvet]

yeah that too lol. If you can''''''''t afford it people...how about don''''''''t buy it??? People barely making ends meet are going getting 60" HDTV flat screens and then wondering why they can''''''''t pay their credit card bills!! I acknowledge that many jobs barely pay enough to live, but if you know that is the case, maybe you should scale back on the TV? maybe get a 27" or something?? gimme a break!!


Now I know this is VERY hard for you Swastika Huggers to understand but THOSE are the people that are keeping this nation OUT OF Bankruptcy. ONCE, when we had a Middle Class, JOBS for them to work AND money for them to spend we were in much better shape but right now the CONSUMER is keeping this nation afloat... you cut their throats and the ship sinks. Sieg Heil Bush!!

[mcvet]

We have the LOWEST standard of living in the Industrialized World and we are continuing to fall. When the Fascist (Republican''s) took over we were NUMBER 1. NOW we see that the policies used by this Administration has not just failed, they have failed badly. We are NOT making up ground but continue to fall every single day more toward Third World Status. Not only have we lost all our good jobs, ALL our Manufacturing but have a TAX INCREASE like none other That''s been imposed by the Fascist and their "Trickle Down". When you figure what that debt is going to cost us in Tax Dollars?? Tax Dollars we could be using to rebuild bridges or something to actually HELP this nation and you understand that we are NOT paying down that debt. When you look at the reality that the Baby Boomers are headed our way, you can see the situation we find ourselves in. Sieg Heil Bush!