Delinquent credit card accounts on the rise

We have reported before about the hazards of borrowing from credit cards, but as a nation, we borrow a lot. Granted, borrowing against a credit card is better than borrowing from a payday loan shop, but doing so still comes with risks. According to the American Bankers Association, consumers who were more than thirty days behind in their credit card payments reached a record high of 4.81 percent in the second quarter of this year. This amount is the highest recorded since record keeping on this subject was started in the early 1970’s.

The rate increase isn’t a huge jump from the previous quarter; in truth, it was only a slight increase. For most of this year, debt-laden consumers have failed to pay their bills on time at a rate of close to five percent. As the White House keeps touting improvements in the economy, we have to wonder - why is nearly one consumer in twenty unable to make a payment?

There are several forces at work and a few other indicators that the situation might get worse. The price of gasoline has reached a record high, even higher than the inflation-adjusted prices reached in early 1981. We live in a nation of car owners, and most of us aren’t buying fuel efficient cars. And the price of gas was about one dollar a gallon not all that long ago. Suddenly, it’s at three dollars per gallon, and that has placed a huge burden on commuters.

The price of gasoline shows no real sign of coming down anytime soon, and uncertainties in the Middle East, combined with the damage caused to the oil refining areas of the Gulf Coast by hurricanes Katrina and Rita would suggest that higher prices may be on the horizon.

In addition, the increases in minimum payments from the credit card companies earlier this year from an average of 2% of the outstanding balance to 4%. The average American family has nearly $10,000 outstanding on their credit cards; this means that the minimum payment has increased from $200 to $400 per month.

That, combined with the cost of gas, could put quite a lot of pressure on someone earning $35-40,000 per year. Adding to the problem is the Federal Reserve, which has already increased interest rates eleven times this year. These rate increases trickle down to short-term loans, and many credit card customers with variable rate cards have seen their rates increase. This will undoubtedly contribute to making a bad situation worse.

Just as there is no quick explanation to this phenomenon, there is no quick solution. Reports indicate that defaults on home loans and auto loans are also on the increase, suggesting that even larger financial problems await many Americans.

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