More US Consumers to Write-Off Credit Card Debt
Money Problems and Rising Unemployment Mean Increased Default Rates
May 12, 2009
In May 2009, the number of US jobless rose to 8.9 per cent. Rising unemployment and unsustainable personal debts are a potent combination; they have caused default rates to spiral out of control. According to MoodysEconomy.com, an economic research and consulting firm, the average US household has approximately $8,400 of credit card debt. Figures vary considerably between families.
US Credit Card Debt Write-Offs Increase Dramatically
- American Express (AMEX) recently had it's credit rating slashed after reporting that it had written-off 8.7 per cent of uncollectable credit card debt in February 2009.
- Citigroup also reported that default rates had increased from 7 per cent in January to a massive 9.3 per cent in February 2009.
- Chase Card Services wrote off 7.7 per cent of it's card loans in the first quarter of 2009. It fully expects losses to surpass rising unemployment levels.
- Capital One Financial also experienced a credit card debt write-off of 8.5 per cent.
Lines of Credit to be Reduced by Credit Card Companies
Financial institutions are seeking to minimise their exposure to credit card debt in light of rising unemployment levels. Meredith A. Whitney, a leading banking analyst, anticipates that the extension of credit lines to borrowers is likely to be cut by as much as $2.7 trillion through 2010. Eric Dash of The New York Times stated: "That is equivalent to a 57 per cent reduction in the credit they made available two years ago at the height of the boom."
Credit Card Companies Seek to Profit with Under-hand Tactics
Interest rates and card fees can be amended by credit card companies at any time. However, new legislation is currently being voted on in the Senate with regard to banning this 'unethical' practice. Linda Sherry of Consumer Action, a non-profit consumer rights organization, stated: "They are continuing their tricky tactics to increase peoples' interest rates and to cut credit limits drastically."
Sen. Christopher Dodd, D-Conn said that: “As we learned in this housing crisis, when credit card companies lure people into deceptive, abusive and predatory financial agreements, it not only means mountains of debt for families, bankruptcy and financial ruin for too many- it can also prove catastrophic for our economy."
Credit card debt is the next major crisis to hit financial institutions. The number of people filing for bankruptcy and using debt settlement companies are already at record levels. Unsustainable personal debt and rising unemployment mean that default rates are set to rise further.
Readers that found this article useful may also be interested in identifying the best credit card deal, discovering how effective credit card debt settlement is or finding out how to avoid identity theft.
Sources
Dash, Eric and Martin, Andrew (May 10, 2009) "Banks brace for credit card write-offs." The New York Times
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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