Credit Basics
Credit Card Debt In The News
Sharon L. Secor
November 11, 2007
With all that is going on in the economic world, there have been a variety interesting stories concerning credit card debt in the news lately. Reviewing these news stories offer a bit of insight into how the current economic situation is affecting the average consumer, as well as other economic sectors of the population and business as a whole. Keeping up to date on financial news can be useful in managing day-to-day personal finances.
On Wednesday, November 7, 2007, Forbes reported that September of this year saw the lowest increase of new consumer debt since April 2007. Consumers took on just $3.7 billion in new debt, significantly less than the $9 billion that industry experts and analysts had predicted for that time period. Interestingly, the vast majority of that debt was in the form of credit card debt and other types of revolving credit, with a minute proportion being devoted to what are referred to as non-revolving debt, such as automobile loans and the like.
The Associated Press offered a report on the following day, November 8, that sheds a bit of light on why that may be. According to a story written by Eileen Alt Powell, credit counseling agencies are seeing a sharp increase in the number of consumers seeking debt management services. Susan C. Keating, for example, who is the president and chief executive of the National Foundation for Credit Counseling, told the Associated Press reporter that the counseling agencies in her organization, which are non-profit agencies, provided such services to about one million consumers in 2005. That number went up to 2.2 million in 2006 and is expected to reach a record level of 2.8 million consumers this year.
Powell's story goes on to point out that a great deal of the new credit card debt taken on by consumers is for the purpose of meeting daily living needs that have become more expensive, due to such things as the increased price of fuel, which affects a variety of day-to-day needs in many ways. Not only does driving become more expensive, for example, but also the cost of food rises along with the increased expense associated with transporting that food and growing that food, as the large farms depend on gas powered farm equipment. Citing Howard Dvorkin, founder of the nonprofit Consolidated Credit Counseling Service, the AP report suggests that it is this pressure to meet basic needs that is pushing many Americans into unmanageable credit card debt to such a degree that they are seeking outside help in the form of credit counseling and debt management programs.
Bloomberg.com was one of many reporting on a fascinating new trend in credit card debt. On Thursday, November 8, 2007, news reporting agencies throughout the nation began reporting on what seems to be an unexpected consequence of the toughening of Chapter 7 bankruptcy laws in 2005 that made it much more difficult for consumers to walk away from credit card debt. It seems that many people are choosing to pay credit card debt over meeting the mortgage payment. Recent statistics from Capital One indicate that in the set of consumers included in this survey, a full 70 percent of those that are three or more mortgage payments behind are up to date with their credit card payments.
Despite more of those carrying significant credit card debt seeking out credit counseling and taking part in debt management programs, as well as those choosing their credit card debt payment over their mortgage, there is still a serious potential threat in the air, according to a NewsMax.com report from Tuesday November 6, 2007. Newmax.com points out that the combined credit card debt of all Americans is almost as high as the $1 trillion in sub-prime mortgage debt that is being carried by big banks on the international level – a whopping $915 billion.
If the consumer staggers under the combined debt burden of credit card debt and mortgage payments, the banking industry could end up losing a significant portion of that outstanding credit card debt to default. Furthermore, according to the Newsmax.com report, 72 percent of the economy of the United States relies straight out on consumption for its profits. That means that a slow down in consumer spending -- something that is likely to occur as consumers throughout the country struggle to manage their debts -- is going to have serious repercussions throughout the nation.
All in all, from the latest news in credit card debt, it is clear that we are living in what that ancient Chinese curse refers to as interesting times. For the average consumer, working to reduce credit card debt and other types of personal debt, is the best move, despite the ill effects that decreased consumer spending may have on the overall economy. That such a huge portion of the economy relies on consumers being less than wise with their money is unfortunate, and it is not a sustainable system. There is going to be some pain involved as the United States economy evolves to a more workable and practical form. That is simply unavoidable and the consumer is best served by working towards a financial position – perhaps by reducing debt and securing essentials -- from which they are better able to withstand the winds of change.
