Credit Card Defaults Still Rising
Credit card stocks rose recently as a result of reports that the number of charge-offs had slowed, but analysts are warning that this is merely a seasonal lull. The lull is likely the result of consumers receiving their income tax refunds and using that money to try to catch up with overdue accounts. Social Security recipients also received “stimulus checks” of $250 each – and those may have slowed the rate of delinquencies.
Accounts 180 days overdue generally turn into charge-offs, which are then handed to credit collection agencies. July reports showed that delinquencies 180 days overdue had dropped, but delinquencies overdue 30 to 59 days have increased. To many analysts, this is a forecast of charge-offs to come.
Depending upon the analysts, predictions are that charge-offs will rise from a current rate of about 10% to as much as 18 or 20%. Some, who are more optimistic, predict a peak of about 11% by early 2010. Charge-offs at some banks already reached 13.8% in June.
Charge-off rates have tripled since January 2007 – keeping pace with the unemployment rates. Unemployment, which was reported at 9.3% in June, is now the highest since 1983, causing many consumers to make tough decisions about paying bills. Unsecured debt is, of course, the last to be paid when income doesn’t cover all monthly expenses.
These numbers include credit card accounts which were included in consumer bankruptcy proceedings, along with those accounts which consumers have simply stopped paying. They do not include accounts subject to “workout” plans created individually by consumers with their credit card issuers, or with debt management plans administered by credit counseling agencies.
If your credit card account is overdue, or nearing the charge-off stage, consider a debt management plan.
Debt management plans call for some voluntary concessions from the lender, but allows for complete repayment of the loan. Thus, debt management plans allow consumers to regain control of finances without destroying their credit ratings.
Consumers should be aware that the legitimate Debt Counseling agencies do not charge for their basic services. Signing up with a company that offers to wipe out your debt for a fee is simply another scam, designed to part consumers with whatever funds they do have.
Rather than respond to an ad that arrives in your mailbox or you e-mail in-box, contact the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling to find a counselor near you.
