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Information on mortgages, home equity loans, and consumer credit to help you use the power of financing to your advantage.
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Credit Cards > Consumer Protection
Are credit cards really under control?
JOHN CUNNIFF, AP Business Analyst. Associated Press.
Copyright Associated Press
NNEW YORK (AP) - It's just not fashionable to say a great many Americans are abusing today's easy credit terms. It's heresy, tantamount to saying that some of those picture-perfect, magazine-style families really aren't good Americans.
No matter what the figures show, and they show some disturbing trends, some local or national banking figure will contend that "the majority of American consumers are using credit responsibly," or that "97 percent of credit cards are paid on time."
And it's true. But that 3 percent or so includes hundreds of thousands of cardholders who walk away from their loans, and hundreds of thousands more who each year declare personal bankruptcy. Besides, paying on time doesn't reveal the problem's extent.
Consider this as an indication of the extent: As a matter of honor and duty, most households manage to pay their credit-card bills on time. But in a year's time they might pay almost as much in interest as they spend for food, while never reducing the principal.
When the economy slows or goes into reverse, as likely it will some day - when raises cease and jobs become scarcer, and the credit-card borrowing limit is reached - where in the budget will the cuts be made? In interest payments, or in spending on food?
Consumer debt in February rose $7 billion, atop a $4.6 billion increase in January, helping to bring the total of consumer debt to $1.244 trillion, for a rough average of about $12,440 per household. That's a bit high when you consider economic conditions.
First, millions of well-to-do families maintain little credit-card debt, and perhaps as many middle-class families keep their debts to a minimum by paying off charges as quickly as they appear. Eliminating those two large categories raises the per-household figure.
You must also consider the fact that after stagnating for years, the lower tiers of wage earners has been winning raises over the past year or so, which presumably would lessen the need for credit. And the same applies to the huge rise in the numbers holding jobs.
Still another factor enters the picture: Because of low interest charges and the availability of tax deductions, many households have eliminated credit-card debt by absorbing it into their home mortgages.
You would be inclined to think that such activity would reduce the need or desirability of credit-card debt in this, the most bountiful economy in years. But it hasn't; to the contrary, and to the dismay of "experts," it rose strongly in February.
The suggestion from all this is that that perpetual credit-card debt has become a fixture of many household budgets. Having relied on it to maintain a style of living, they either cannot or choose not to pay down their credit cards.
It has a great deal to do with a still very high level of delinquencies - between 3 percent and 3.5 percent - and personal bankruptcies that last year exceeded 1.3 million, a category that just a couple of decades ago was economically insignificant.
The word is now spread from the banking industry that, in defense of its image for prudence and responsibility, it is more careful in soliciting customers. But some renegade issuers see it differently. To them, the poorest risks make up the largest untapped market.
End Adv PMs Thursday, April 9
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Text Word Count 551
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• Credit Cards > Consumer Protection Archive
• Credit card payoff Use this calculator to see what it will take to payoff your credit card balance, and what you can change to meet your repayment goals.
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