Skip to comments.Consumers Face Challenges in Handling Debt (Higher Consumer Cost Squeezing People.)
Posted on 07/05/2006 5:39:20 AM PDT by Hydroshock
Rising Interest Rates, Higher Gasoline Prices Make It Harder for Consumers to Handle Debt
NEW YORK (AP) -- Rising interest rates and higher gasoline prices are putting the squeeze on consumers' budgets, and many are finding it harder to keep up with their bills. Credit counseling agencies say that consumers are coming in in droves seeking help. ADVERTISEMENT
"My phones are going crazy," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla. "Consumers are carrying an exorbitant amount of debt -- and they don't have any savings to fall back on if things don't go right."
An important measure of consumer financial distress, late payments on credit cards, ticked up in the first quarter, according to figures from the American Bankers Association. The Washington, D.C., based trade group said the percentage of bank cards 30 or more days past due increased to 4.40 percent in the January-March quarter from 4.27 percent in the final quarter of 2005.
The Federal Reserve's decision last week to raise short-term interest rates for the 17th consecutive time will boost yet again borrowing costs for consumers, likely prompting more delinquencies on credit card bills -- as well as on auto loans and mortgages.
The slowing economy also is depressing income growth, so a greater percentage of take-home pay is going toward necessities and less is left over for debt payment.
Among the consumers who recently put a call into Dvorkin's counseling center was Andreia Marshall, an assistant project manager for a builder in Delray Beach, Fla.
Marshall said that after she broke up with her boyfriend, her paycheck wasn't big enough to cover her apartment rent, higher gasoline prices and other day-to-day expenses. Soon she started falling behind on her credit card bills.
"It got to the point where the credit card companies were calling," she said. "It's overwhelming, you feel as if you're drowning and you feel bad about yourself."
With help from a credit counselor, Marshall is working out a budget and whittling down her $13,000 in card debt, which she figures could take 3 1/2 years.
"I have to think about everything I spend," she said. "Sometimes in the grocery, I have to say to myself, 'Do you really need to buy this?' And I'm looking at things like, how can I not spend $80 on dry-cleaning."
Marshall said that instead of feeling deprived, she's feeling good about it.
"I'm proud about what I'm doing," Marshall said. "I'm paying that debt and getting educated, and I know I won't make the same mistake again.'"'
Catherine Williams, a credit expert with Money Management International, a Houston-based financial counseling and education agency, said rising costs for gasoline and utilities were only part of the explanation for rising credit card delinquencies and increased consumer financial stress.
"People refinanced (their mortgages) six months or a year ago, so the 'house bank' is empty," Williams said. "Most can't go back and tap their home equity again."
In addition, she said, consumers can only juggle debt payments for a while. As she put it: "You let the car payment go one month, then the house payment. Then you make a lot of little creditors happy for one month, maybe for two months. Then it becomes obvious that you have to catch up on car payments, and everything else slides."
Williams called it "a dangerous strategy" because consumers who let accounts go delinquent risk harming their credit ratings. A poor credit rating makes it harder for consumers to get loans and can force them to pay higher rates on the loans they do get.
Consolidated Credit's Dvorkin pointed out that millions of Americans rushed to declare bankruptcy before the law change last fall made it harder for them to discharge unsecured debts. The high level of bankruptcy filings temporarily depressed the delinquency statistics and other measures of consumer financial distress, he said.
"Now we're seeing a new crop of people starting to get into trouble," he said. "They can't keep up. They're the ones most affected by increased gas prices and higher rates."
He said juggling payments is one of the "leading indicators" that a consumer is in trouble. He added that other telltale signs are:
-- You only make minimum payments month after month.
-- You're taking cash advances on one credit card to make the minimum payments on others.
-- You delay -- or are late, with important payments, such as the monthly mortgage.
-- You put off necessary activities, such as doctors' appointments.
Funny. I don't spend a penny on dry-cleaning. And I'm not in debt. What are the odds?
A 5.3% growth rate is a slowing economy???
That one struck me as well.
Stop spilling your $7 lattes on your blouse.
And stop buying blouses that need to be dry-cleaned.
It is if most available jobs are near minimum wage and for housing/living you need to earn $38,000 a year.
That's a garbage argument.
Try living in NY state. $7.50 or less an hour won't pay rent of $1100 a month. You can get places for $800 a month but you're then an hour away from work and paying a premium for gas. You may think it's garbage but upstaters are trying to live it.
No it is not. Yesterday I got to talk to a large number of my family members at our BBQ. Under the deck cover (raining buckets) and over beer i asked every one of us guys out there what they thought of the economy. Not one thinks it is going good, many are worried. I heard at least twice people dismiss the "leading economic indictators' as false. Perception is reality, Bubba.
Hey, give Willie Green my regards when you scurry back over to the gloom 'n doom site!
I live Upstate. That amount for rent is nuts. Where are you talking about?
1) I have no desire to live in New York, thank you.
2) Your beautiful tale somehow provides supporting evidence of your garbage argument that most new jobs are minimum wage? ROTFL!
Now if you'll excuse me, I need to go get in line for bread.
You'd like the red bits. If Upstate ever gets its own state, you'd like it even more :)
It is if most available jobs are near minimum wage
Topic is rate of change, not how well jobs pay.
The economy is growing at a robust pace. Some folks may not be enjoying a comfortable lifestyle, but that does not change the rate of growth. Which is spectacular right now.
The best way (only way) for poor folks to do better is for the economy to grow. Which it is. So quit yer belly-achin'.
Orange County. Average price of a house was $266,000 two years ago. It more than doubled. I don't know what it is now. It's not any better in Sullivan either. After 9/11, the housing went berserk.
Can I have yore empties? I kin git a nickel apiece for 'em, so's Ma and Pa can buy us some supper.
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