Huge Upswing in Credit Card Borrowing

by Christopher Peterson

New fed numbers are out showing Americans sucked down 6.9 billion dollars in new credit card debt, increasing outstanding consumer credit to $2.52 trillion during the month of January. This increase was double the $3.7 billion increase in the previous month of December--despite holiday sales.

This seems like a very ominous development to me. One suspects that this increase in borrowing is causally related to credit tightening in mortgage and home equity lending, and also that consumers facing foreclosure are turning to credit cards to stave off financial collapes. Distressed debtors that are shifting their living expenses into credit card borrowing are going to face high default interest rates and could be setting themselves up for a harder fall.

I hope the credit card lenders have their models figured out. As financial refugees from the mortgage market flee into the waiting arms of credit card lenders, it seems like there is the potential for subprime securitization problems to echo into credit card receivables. January's increase in credit card borrowing makes me wonder if the normally sophisticated credit card lenders' underwriting may finally come up short. Just a tip to all those Norwegian villagers, hedge fund managers, and investment bankers hoping to not look like Bear Sterns: Post-bubble vintage credit card recievable backed securities are a sucker bet.

Check out Patrick Deneen's interesting blog post for more thoughts.

Comments

[Kirk]

This a realy valid point. Many consumers have been living off of their home equity lines of credit (HELOC). The fed came out with a report a few weeks ago showing that of 3 categories - homeowners, non-homeowners, and homeowners with a HELOC, thelast group had the worst savings rate. And now the available credit on many HELOC's is getting cancelled so the bank doesn't get hit with the consumer's debt that they can't pay back. If you're in having this trouble, get help right away before it gets worse.

[TJs Debt Free Advice]

All debt hinders personal growth, not just credit cards. Any type of loan, should be eliminated unless you want to be a slave to others.

[Jennie]

Unfortunately, many homeowners fall into the trap of using their home equity to pay off unsecured credit card debt. In my opinion this is not the smartest way to handle a debt problem, especially unsecured debt. Why put your home up for collateral for unsecured debt?? You are basically setting yourself up for disaster. A large percentage of the people who do this make one fatal mistake, they do not get rid of the credit cards they just paid off. They then start using them again and end up with a home equity loan to pay and all of the credit card debt. If people were to research their options and see what was out there first, they may not take this route. There is consumer credit counseling, debt settlement, debt roll down and many, many others. Depending on the persons financial situation would depend on what program is best for them.

[George Tallabas]

This country has become obessesed with materialism, consumerism and debt. As Rich Dad, Poor Dad points out we graduate from school and enter the workforce and running up debt is all we know. I have seen it in my own town and it is sad. As a Realtor of over 28 years I saw many getting in way over their heads and they now think nothing of running up tens of thousand of dollars in credit card debt. It is a vicious cycle that will suck a person or couple down faster than anthing and there is no future in it.

[Bad Credit Loans]

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