The American Bankers Association recently announced that delinquencies on credit cards are higher this year than they have ever been. (A delinquency on a credit card means that you are behind by 30 days or more on paying your bill.) Delinquencies are also up on personal loans as well as car and home equity loans. And it is likely that the number of delinquent cardholders will only rise.
James Chessen, the chief economist for this bankers' trade association, which has been in existence since 1875, says:
"The last two quarters have not been pretty. Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations. With gas prices still rising, the third quarter is not likely to be any better."
Is the Price at the Pump Responsible for this Rise in Delinquencies?
While the price of gas has and will have an effect on family budgets and everything we buy, especially in areas where there are winter heating bills to pay, it is not entirely responsible. As credit expert Gerri Detweiler, author of The Ultimate Credit Handbook, puts it:
"It's not just higher gas prices that are putting the crunch on consumers. High interest rates on credit cards, including default rates as high as 27% are making it difficult for consumers to get ahead."
Default interest rates, also known as universal default, are applied by many lenders when cardholders have been late in paying another bill, for example, their mortgage. Card issuers have their own formulas for deciding when to raise the rates (look at the tiny type in your credit card agreement). While a late payment of two weeks may be the trigger for some banks, delinquency -- being 30 days late or more -- is likely to cause rates to go up on any credit card. For more on universal default, see The Universal Default Credit Card Clause: How Your Credit Card Interest Rate Can Go "Through the Roof" for No Apparent Reason, by Rebecca Lindsey, a senior reporter for CardRatings.com.
Between delinquencies, universal default, the high cost of fuel, and the fact that the Federal Reserve Board keeps raising interest rates to reduce the risk of inflation, cardholders may find themselves much deeper in debt and less able to make ends meet. Here's what happens next, according to Detweiler, who is the co-founder of StopDebtCollectorsCold:
