Increasing Credit Card Debt Risk

Sep.08, 2008 in Market Outlook

“onsumer debt — including credit cards and auto loans but not including mortgages - increased $4.6 billion to $2.59 trillion, the Fed said. It was the slowest growth in credit since the 1.9% growth rate in December.

Growth of credit card debt accelerated to 4.8%, or $3.9 billion, in July from 3.5% in June. Growth of nonrevolving debt - largely auto loans - slowed to 0.5%, or $678.1 million, the slowest since December.
The average interest rate for a new-car loan plunged to 3.31% from 5.49%; it’s the lowest rate since September 2006. The maturity of the average loan widened to a record 67.2 months from 63.5 months in June.”

A very large number o f borrowers on credit cards don’t have single digit interest rates and nor everyone can pay off their entire balance every month, some pay minimum balance only. Anyone consider higher risk, which most people using them as a means of last resort after being turned down for lower interest forms of borrowing. They may have no money left after paying their mortgage and bills and have to use a credit card to pay for food even heating and gas.
As they’re considered a high risk, they are charged much higher rates, than the lower rates credit card companies tend to use for advertising purposes. Also as someone sinks into debt banks can and do revaluate their indebted customers regularly upping the interest rates they charge whenever they like and some interest rates are sheer extortion. Then you get even more shady credit card companies moving in on people in debt, being supplied with customer details often by banks, sometimes to subsidiaries of main banks specialising in lending to high risk customers, offering them absolutely incredible rates. The largest one I’ve seen is an advertised rate of 64%
Poor people are sucked in but richer people can be too who may have been used to shopping and spending beyond their means.

Some people are reckless spenders others are disparate with nowhere to turn but maybe they took a mortgage on using advice from mortgage advisers often the banks before committing to a mortgage and at the time t seemed they could afford it then interest rates started rising for their mortgage, rising food, heating and gas costs, maintenance on their homes, other utility bills rocketing and perhaps wages virtually freezing or falling even being laid off, they are unable to borrow as their bank perceives them as too risky, but their bank may turn them down for a loan or mortgage but allow them to have one of the super high interest rate credit cards. They get sucked in use it to buy food pay bills and then try to get as many credit cards one by one as they max out each one, paying minimum balance each month until they have a house of cards. As credit reference agencies mark them down and this information is given to the credit card companies they up their interest charges and if they struggled to pay before after raising them they can be pushed over the edge as their house of card collapses.

It’s a debt spiral and many people could be in danger.

Whatever, these figures showing escalating credit card debt are terrible not only for the people in difficulty having to resort to these means, but the entire economy. It’s a deflator for the economy as in effect the banks suck every bit of money their customers have leaving no or very little disposable income left for them to but things and thereby stimulate the economy. In effect the banks take the shirt off their back, before they take their home and put the now common advertising foreclosure sign up and underneath in big letters the famous words, bank owned.

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