Category: Consumer Debt

All the latest numbers make it look like a success story. Credit card debt and delinquencies have declined in recent months, and experts hail these numbers as a sign that Americans are pulling themselves out of financial trouble.

But a new report in the Wall Street Journal says a deeper look tells the opposite story. The real reason for these sharp declines over the past few months, despite rates of joblessness remaining rather high, is that credit card companies are simply writing off long-delinquent debt as money they will never collect.

The evidence, the Journal says, is found in the quarterly numbers from the Federal Reserve Board and the Federal Deposit Insurance Corporation, which show that despite $19.5 billion in debt reduced in the first three months of the year, $18.7 billion of that – almost 96 percent – was actually written off as being irretrievable.

A Forbes report on the drop in debt and delinquency said that unemployment and delinquency figures are usually closely connected, but that trend didn’t hold last month as delinquencies dropped while joblessness held steady.

With credit card debt mounting and bills piling up, many Americas may wonder what they can do to help their financial situations.

According to an article in U.S. News and World Report, one thing that consumers may now consider is trying to lower the interest rates they pay. There are several ways to attempt to do so, but the report says the easiest is to simply call the credit card company and ask for a lower rate. If a consumer mentions that they saw a low rate on a card from another company, their current lender may be inclined to offer a lower rate in an attempt to keep the business.

However, this does not always work, and consumers should be prepared to transfer their balance to a card with a low introductory rate. Often these new rates last for a year, and allow consumers to pay off nothing but the principal for up to a year. There is, however, often a fee associated with balance transfers.

Consumers should be aware that lenders have tightened requirements for borrowers thanks to the new credit card laws, which can complicate matters for consumers because new rates may simply be impossible to find.

Despite the fact that there have been a number of signs that the economy is slowly improving, daily consumer spending dropped between May and June.

According to a new poll from Gallup, Americans spent $67 per day during June, in stores, at restaurants and gas stations, and online. That number marked a decline of $5 from the previous month, but is up $6 from the same month in 2009. The $67 a day is more or less in line with recent months, which are near the highs for 2009. But it is well below the standard set in 2008 before the recession hit, when consumers spent between $81 and $114 a day.

Gallup said that Americans in the East spent less per day in June than either the previous month or June of 2009. Those consumers spent $62 a day, down $13 from the previous month and $3 from last year. Spending in the Midwest, meanwhile, increased dramatically from last year.

A report from financial news website 24/7 Wall Street said that the data suggests the job market is improving. Because Gallup polls are self-reported by consumers, this may signal that confidence is on the rise.

Yet another sign that the American economy is starting to recover came recently and showed that more Americans are paying off their credit card debt on-time.

The most recent report from the American Bankers Association said that the number of consumers with delinquencies on their bank-issued credit cards dropped to 3.88 percent in the first quarter of this year. The ABA defines a delinquency as a payment that is 30 days or more overdue.

The report said that this is the first time the national delinquency rate on such cards has dropped below 4 percent since the second quarter of 2002, and is also slightly below the average delinquency rate over the last 15 years, which is 3.93 percent.

"It’s clear that consumer balance sheets are improving. People are borrowing less, saving more and building wealth. These are all positive signs," ABA chief economist James Chessen said.

Unfortunately, unemployment remained high at 9.5 percent in June, so this trend may not necessarily continue into the second quarter of the year.

Many out-of-work Americans who are actively looking for jobs may find it hard to get a callback or an interview despite meeting many of the requirements set forth in the job listing.

One reason could be that about 60 percent of employers examine the credit reports of their applicants, and if one has a spotty or bad credit history, they can be disregarded very easily, according to the San Francisco Chronicle. This practice is unfair because many out-of-work people have bad credit reports because they don’t have a job, which creates an unfortunate Catch-22: They can’t get a job because not having a job ruined their credit.

Because more than 6.5 million Americans have been unemployed for six months or more, the paper says, those people may pay more bills late. Doing so can seriously damage a credit score and make a credit report look awful.

Lawmakers in Oregon felt the practice was unfair as well, and passed a law prohibiting it as of July 1. According to Oregon Business, several other states across the country have either passed or introduced similar legislation.

As any consumer who has tried to pay their own or someone else’s way through higher education can attest, getting a degree is expensive.

But there is a way for consumers to pay for college without taking on large amounts of credit card debt and massive private student loans, according to television station KNDO in Yakima, Washington. The first and most important step, the report said, is understanding the "true cost" of a college degree. Tuition is expensive everywhere – though public universities are more than $11,000 cheaper than private schools per year, on average – and those costs don’t include things like housing, meals, textbooks and supplies.

The station also recommends consumers look into getting help from the federal government to pay for tuition. Filling out the Free Application for Federal Student Aid can open the door for nine federal student aid programs and more than 600 others administered by states and various institutions. Students can also seek scholarships, and not just those for academics. The report says that there are scholarships for everything from left-handed people to those whose parents work in certain professions. Anyone interested in getting a scholarship should seek them out online.

The report says that there are long-term savings accounts called 529 education savings plans that can help those who want to plan for the future education of young family members. The earnings of these accounts are tax-free in every state but Alabama. Further, there is grant money available for some students, though these are often not big enough to cover the entire cost of an education. A recent law was passed that limited federal Pell Grants to $5,500. The upside of these grants, though, is that they do not have to be paid back.

And for those currently in college looking to save some money, the report says that reining in credit card spending, or cutting it out entirely, is the best way to do it. Credit card debt is not easy to pay off thanks to high interest rates, and, because of the soaring cost of education, bills can pile up in a hurry even if students try to live within their means.

A 2009 poll from Sally Mae said that 92 percent of undergraduate students with credit cards use them to pay for things like books, supplies, and other school-related expenses. Thirty percent use them to pay their tuition as well.

It’s not easy to pay for college these days, and more consumers are finding that they have to put some of their student loan debt on their credit cards.

A recent survey conducted by credit card news website CardRatings.com found that 36 percent of those polled carried some amount of their student loan debt on their credit card. Of the respondents, 12 percent said student loans accounted for $5,000 or less of their total credit card debt, 7 percent said they had $5,000-$10,000, the same number said they had $10,000-$20,000. A full 10 percent reported that they had more than $20,000 in student loan debt on their credit card.

The site’s report on its findings said the downsides to carrying such significant debt on a credit card is obvious. Students end up shelling out considerably more for their education when they pay for it with their credit card thanks to the associated interest rates.

A 2009 poll by Sally Mae said that 92 percent of undergrads with credit cards use them to pay for books, supplies and other school-related expenses. Another 30 percent use credit cards to pay their tuition.

Consumers in Minnesota have recently been victimized because of incorrect information about their debt.

Debt collectors across Minnesota have been sending out letters informing consumers that they owe thousands in credit card debt and other late payments. According to a report in the Minneapolis Star-Tribune, a number of these letters are based on inaccurate information. The firms sending the letters are in the business of debt collection, having purchased massive databases of unpaid debts for pennies on the dollar and flooding courts with legal actions in which they demand the full amount plus interest and fees.

The report says the firms’ claims can be impossible to verify, and that advocacy groups estimate that one in 10 debt-buyer lawsuits across the country are the result of inaccurate information. The problem is especially bad in Minnesota, where proof of the claims’ accuracy is only needed if a debtor disputes a claim in writing. That happens in less than 10 percent of cases.

A recent report from TV station KUSA in Denver said that the Federal Trade Commission received nearly 100,000 complaints about third-party debt collection agencies last year.

Consumers will, at some point in their lives, pile up some amount of debt. Between mortgages, car loans, student loans and credit card debt, keeping track of payments can quickly spiral out of control without the proper know-how.

According to a report in the Atlanta Journal-Constitution, consumers can succumb to the dangers of credit card debt very easily unless they take a few precautions. For example, only paying the minimum on credit card bills means it will take years to pay off even the smallest charges thanks to interest rates, especially if the rates are above 20 percent.

The report also said some consumers who don’t know how much they owe and can spend each month versus what they earn. Credit card payments should not exceed more than 20 percent of monthly pay, and mortgages no more than 30 percent. One expert told the paper that he has seen many consumers whose interest payments exceed the principal, which is a major problem and can badly damage a consumer’s credit score.

A recent report from CBS News said that improving a credit score that may have been damaged is as simple as paying bills on time and checking their credit report for any inaccuracies.

As the economy has recovered in recent months, more Americans are getting more money to pay back some of the debt they’ve incurred over the last year or two.

According to a new study conducted by the consumer website BillShrink, 67 percent of the 220,000 people surveyed said they are payingoff their credit card balance in full every month. A similar study conducted last year found only 24 percent of respondents did so. BillShrink said those numbers may be backed up by Federal Reserve figures that have found consumer debt declined by $113 billion in the same period.

The survey also found that the rate of people paying off their debt increased dramatically in the last four months, which is directly attributed to the passage of the Credit Card Accountability, Responsibility and Disclosure Act around the same time.

According to the Federal Reserve, the average consumer carries about $8,000 in debt of some kind – be it car loans, credit card balances or a mortgage – for a national total of $2.448 trillion.