Overdue Credit Card Bills Hit Record
High
Yahoo News/AP
By JEANNINE AVERSA
AP Economics Writer
Wed Sep 28, 7:01 PM ET
WASHINGTON - Charge it! That familiar refrain is producing an unwanted
response for more Americans: Your bill is overdue! Surging energy prices, low
personal savings and the higher cost of borrowing have combined to produce a
record level of overdue credit card bills.
The American Bankers Association reported Wednesday that the percentage of
credit card accounts 30 or more days past due climbed to an all-time high of
4.81 percent in the April-to-June period. It could grow in the months ahead,
experts said.
The previous high of 4.76 percent came during the first three months of the
year, in keeping with a generally steady rise over the past several years.
"The last two quarters have not been pretty," said Jim Chessen, the
association's chief economist.
Chessen and other analysts mostly blamed high prices for gasoline and other
energy products, but said that low savings and higher borrowing costs also
played a role.
"The rise in gas prices is really stretching budgets to the breaking point
for some people," Chessen said. "Gas prices are taking huge chunks out of
wallets, leaving some individuals with little left to meet their financial
obligations."
Pump prices were high before hurricanes Katrina and Rita hit the Gulf Coast.
After Katrina, prices jumped past $3 a gallon. Prices have moderated since but
remain high.
The personal savings rate dipped to a record low of negative 0.6 percent in
July. The negative percentage means that people did not have enough left over
after paying their taxes to cover all of their spending in July. As a result,
they dipped into savings to cover the shortfall.
When people have less money available money to pay for energy costs or
emergencies such as a big car repair, many resort to credit. That option is
getting more expensive, too.
The Federal Reserve has been tightening credit since June 2004. That has
caused commercial banks' prime lending rate to rise to 6.75 percent, the
highest in four years. These rates are used for many short-term consumer loans,
including credit cards and popular home equity lines of credit.
Late payments may be bad news for consumers, but credit card companies do
not necessarily mind them because late fees are a source of revenue.
"Credit card companies are increasingly addicted to their fees," said Daniel
Ray, editor-in-chief at Bankrate.com, an online financial service. "Six years
ago, all fees — including late fees — contributed only a minor
portion to overall revenue. Today it accounts for more than 30 percent."
About half of all credit problems stem from poor money management. Credit
problems due to the loss of a job, sickness or divorce play less of a role,
said personal finance expert Susan Tiffany, director of consumer publishing at
the Credit Union National Association.
"That tells us people have some ability to do a better job. They are not
completely helpless in the situation, and that's good," said Tiffany, whose
trade group also is involved in efforts to improve people's financial
literacy.
Getting back on the road to financial health takes discipline and hard
choices about what can be cut back or eliminated. If credit card problems are
plaguing a family, all the members should work together to come up with a plan
and pare down spending.
From an economic perspective, the current rise in delinquent credit card
payments is not overly worrisome. But if the trend were to continue for a
sustained period, it could spell trouble for the overall economy, said Lynn
Reaser, chief economist at Bank of America's Investment Strategies Group.
"It's a flashing yellow light that we need to watch," she said.
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