06.17.09 | Credit Cards, the Consumer Bailout Plan
May saw another record topple down, but not in a good way. U.S. credit card defaults rose to record highs last month.
Delinquency rates, an indicator of future credit losses, fell across the board which was great. But the more sobering news was that this drop was expected. It is typical based on seasonal data for delinquency rates to drop this time of year as a large percentage of people allocate tax return dollars to due or past due balances. Unfortunately delinquency rates are expected to be on the upswing again in the coming months.
Perhaps the most important indicator that more unsettled times loom ahead is the unemployment rate which has increased steadily over the past 14 months from 5% in April of 2008 to 9.4% today. Many of the unemployed are using their credit cards like debit cards and running up astronomical bills they know they can not repay, at least not at this time.
I can’t really say I blame those who are charging every penny available to them either. The pastic serves as a neceassry evil. When the choice is between don’t eat or charge groceries I know which one I’m picking. Credit cards serve as a means to an end for so many. Economist say we are poised for 2010 turnaround – can we hit fast forward to January 1 please?
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Platinum Student. I respectfully disagree. Sure you have a baby to feed and its your only access to money, perhaps a credit card can hold you over for a few weeks. However, this is not the case for the majority of consumers. We have built into our psychology to lean on credit cards in bad times, and use them for “benefits” in good times. The sad truth is that consumers who regularly use credit cards are 26 times less likely to ever achieve a secure retirement according to the Wall Street Journal June 19, 2009. Creditors are offering to reduce and settle out the debts of consumers who are having a financial hardship. It’s my opinion consumers should take this opportunity to get off the credit card dead end. Dumping 60% or more of your credit card debt and learning how to live lean for the next couple years is a better long term strategy. Respectfully, Jacob
November 2nd, 2009 | #