Why Credit Card Loan Delinquencies Are at an All-Time High

Posted On: October 12, 2005

“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:

---

“As consumers fall behind on their bills, they’ll run into debt collectors. It’s more important than ever that they know their rights so they aren’t pressured into making payments they really can’t afford.”

---

Are You in Trouble?

If you are wondering how much you need to worry about delinquencies and universal default, consider these warning signs of being overextended on credit from the American Bankers Association:

• Paying only the minimum payment month after month
• Being out of cash constantly
• Being late on important payments, such as rent or mortgage
• Taking longer and longer to pay off balances
• Borrowing from one lender to pay another

If these warning signs ring a bell for you, it is extremely important for your financial future that you get on the case. If you ignore this problem, you will pay and pay. New bankruptcy regulations will make it much harder for people to get out from under financial stress. Even if you are just a little behind, you might want to consider some credit counseling before the loss of a job, an accident, or an illness makes it even harder to make ends meet.

A good place to start is with this CardRatings.com article: Nonprofit Credit Counseling Agencies - Think Twice Before You Leap, as well as the many other articles on the site that share helpful tips about managing your debts. You can also ask for help at your place of worship or visit the Cooperative Extension Service office near you. Located in nearly every county in the United States, each Extension Service works with federal, state, and local agencies to develop programs in family finance, as well as in child development, housing, nutrition, and horticulture.

Still Have Your Head Above Water?

If you feel as though these warning signs don’t apply to you … yet(!) … the good news is that there are many things you can do now to avoid future cardholder delinquency as well as those costly universal default interest rates. One of the keys is to always pay your bills on time. For more tips on what you can do, see Avoiding Credit Card Debt - Preventive Medicine is Best.

We welcome your comments about credit card issues in our popular credit forum!

---

Nancy Castleman has spent 20+ years helping people get out of debt, save money, and live better on less. Along with her partner, Marc Eisenson, Nancy is known for her work on mortgage pre-payment, and for first
explaining “credit card math” in her often acclaimed free e-letter, The Pocket Change Investor. Find it, along with many articles from back issues, special reports, link picks, and book reviews, on her Good Advice Press Web site. You can also see pictures of her 10,000 sq ft organic garden and her nine grandchildren!

But what she’d most like you to do is read about her book, Invest in Yourself(Wiley, 1998, 2001), which she wrote with Marc Eisenson and Gerri Detweiler. Nancy considers this book, which discusses how to invest your time, energy, and money to create the life you want, to be her life’s work. Nancy’s books have received rave reviews in leading national publications, including USA Today and Money Magazine.

---

CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

---

Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thanks for your interest!