Budget Basics
Gas pains in credit bills. High prices, late payments
BY Phyllis Furman
Daily News Business Writer
Soaring gas prices are turning a record number of Americans into credit-card deadbeats.
Credit card delinquencies - that's bills overdue by at least 30 days - reached a record high of 4.81% of accounts in the three months ending in June, the American Bankers Association announced yesterday. That's compared with 4.76% in the first three months of the year.
The reason: After paying through the nose to fill up the tank, many folks find there simply isn't enough left over to pay the credit card bills.
"Gas prices don't look like they are coming down any time soon," ABA chief economist James Chessen told the Daily News. "Today, it costs $500 more than it did last year to operate a car. That's a whole lot of money."
The price of gasoline in New York hit a record $3.38 a gallon on Sept. 11 of this year. The average price in the city for a gallon of regular unleaded gas is currently $3.03 a gallon, up from $2.10 at the same time last year, according to AAA.
Americans aren't just skipping their credit card payments. The ABA surveyed a number of other types of borrowing - including personal loans, auto loans and home equity loans - and found increases in delinquencies in nearly all of them.
"My concern is many people are having financial difficulties," Chessen said. "Personal savings rates are down. There is less of a buffer to fall back on."
As financial pressures mount, consumers, who account for more than two thirds of the economy, could finally start to spend less and that could hurt the economy.
"You're looking at an economy driven by consumers and consumers are getting killed," said Howard Dvorkin, president of nonprofit group Credit Counseling Services. "The price of everything is rising. The consumer is getting caught in the crossfire."
While soaring gas prices are the key factor behind delinquencies, rising borrowing costs are also playing a role.
"The Federal Reserve has been pushing up the price of credit. Many credit cards are now at variable rates," he said.
Indeed, the Fed has raised interest rates 11 straight times since last June, boosting the price of a wide range of loans.
And there are more clouds ahead for stressed-out borrowers.
Dvorkin noted that starting in October, credit card companies will double their minimum payment requirements.
That means a person paying $100 a month on a $5,000 loan will now have to pay $200 a month.
"The average debt per household is $9,000," Dvorkin said. "The rate now is $180. It will be $360."
Regulators including the Fed issued these new minimum balance guidelines so borrowers will be able to pay their balances sooner.
On top of that, starting on Oct. 17, it will become much harder to file for bankruptcy, because of changes in the bankruptcy law.
The data showed that while the rate of late payments rose, the dollar amount fell to a five-year low. That indicates that some borrowers are having trouble staying current on smaller bills.
"You're going to find people around the margins that get stuck when they find themselves having to make bigger payments," David Robertson, publisher of the Nilson Report, a credit-card newsletter, told Bloomberg News. Robertson put the total credit-card bill at $816 billion.
Warning signs of credit overload
- Paying only the minimum payment month after month.
- Being out of cash constantly.
- Being late on important payments, such as rent or mortgage.
- Taking longer and longer to pay off balances.
- Borrowing from one lender to pay another.
What to do if you are drowning in credit card debt:
- Take an account of your finances.
- Talk with your creditors. Hiding only makes the problem worse.
- Don't charge more purchases until your problems are solved.
- Avoid bankruptcy. It's a short-term solution with long term consequences.
- Contact a credit counseling service like Consolidated Credit Counseling. A credit counselor can help you negotiate lower payments to credit card companies.
Source: American Bankers Association
