Budget Basics

Tuesday, July 25, 2006
By Eileen Alt Powell-Associated Press

NEW YORK -- Rising interest rates and higher gasoline prices are putting the squeeze on consumers' budgets, and many are finding it harder to keep up with their bills.
In Delaware, some credit and housing counseling agencies are seeing a drastic increase in the number of people seeking help.

An important measure of consumer financial distress, late payments on credit cards, ticked up in the first quarter, according to figures from the American Bankers Association. The Washington-based trade group said the percentage of bank cards 30 or more days past due increased to 4.40 percent in the January-March quarter from 4.27 percent in the final quarter of 2005.

The Federal Reserve's decision last week to raise short-term interest rates for the 17th consecutive time will boost yet again borrowing costs for consumers, likely prompting more delinquencies on credit card bills -- as well as on auto loans and mortgages.

The slowing economy also is depressing income growth, so a greater percentage of take-home pay is going toward necessities and less is left over for debt payment.

Many credit card issuers increased the amount of the monthly minimum payment. That was followed by a rise in gasoline prices and Delmarva Power Co.'s rate hikes, which sent electric bills up by 60 percent.

The trend extends across the nation.

"My phones are going crazy," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla. "Consumers are carrying an exorbitant amount of debt -- and they don't have any savings to fall back on if things don't go right."

Among the consumers who recently put a call into Dvorkin's counseling center was Andreia Marshall, an assistant project manager for a builder in Delray Beach, Fla.

Marshall said that after she broke up with her boyfriend, her paycheck wasn't big enough to cover her apartment rent, higher gasoline prices and other day-to-day expenses. Soon she started falling behind on her credit card bills.

"It's overwhelming, you feel as if you're drowning and you feel bad about yourself," she said.

With help from a credit counselor, Marshall is working out a budget and whittling down her $13,000 in card debt, which she figures could take 3 1/2 years.

"I have to think about everything I spend," she said. "I have to say to myself, 'Do you really need to buy this?' And I'm looking at things like, how can I not spend $80 on dry cleaning."

Catherine Williams, a credit expert with Money Management International, a Houston-based financial counseling and education agency, said rising costs for gasoline and utilities were only part of the explanation for rising credit card delinquencies and increased consumer financial stress.

"People refinanced [their mortgages] six months or a year ago, so the 'house bank' is empty," Williams said. "Most can't go back and tap their home equity again."

While Rangan said the impact of higher bills is widespread, homeowners who took out mortgages that fluctuate with rising interest rates are particularly vulnerable.

A state-funded study released last week found that foreclosure filings were up 51.6 percent in Delaware during the past five years. A foreclosure filing is the first step in the process -- it means the lender has filed a lawsuit in state court against a borrower who is behind on mortgage payments. About 46 per- cent of homeowners against whom foreclosure is initiated end up losing their homes, according to the study.

"Forget the other bills, [some] can't keep shelter over their heads anymore," Rangan said.

Dvorkin said juggling payments is one of the "leading indicators" that a consumer is in trouble. He added that other telltale signs are:

• You only make minimum payments month after month.

• You're taking cash advances on one credit card to make the minimum payments on others.

• You delay -- or are late, with important payments, such as the monthly mortgage.

• You put off necessary activities, such as doctors' appointments.