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.
About dry cleaning: In California, there are hundreds of discount dry cleaning shops. Some shops do shirts and blouses for less than $ 1. They have lines of people outside waiting with piles of clothes in their arms. In Oregon, there is no discount dry cleaning. They never heard about doing shirts for less than a dollar. Moreover, pants, dresses and suit cost a small fortune to dry clean. Every dry cleaner seems to lose clothes by the ton every month as well. They must sell half of what they do out the back door at Spanish language discount stores. Unless you speak Korean or Spanish, don't even bother complaining.
Actually, the economy suffers from over-employment. There are 12 million illegal aliens working here. That is what keeps a damper on overall wages at the lower end of the spectrum.
But alas, this opportunity was passed up.
Your story on dry cleaning illustrates a good point.
So much of the economy is regional, and this story uses a broad brush to paint the picture. Where one state prospers another sinks -- Michigan is a good example. There are so many houses on the market right now it's not funny and nobody is buying. Areas that have been depressed for years are starting to recover, but it's only because they're willing to work outside the Big Three. Jackson (MI) is starting to do better since a lot of its local manufacturing base is turning OUTSIDE the US for business. They're actually EXPORTING products to China and Asia.
Things in Detroit are going to need to be much, MUCH worse for a long time before things get better. If DeVos is elected, cutting the city off from massive state subsidies and pandering will bring about the decline quicker and *maybe* let small business do a few things. I don't have much hope for Detroit, but I'd like to be proven wrong.
My take is some folks - like the woman in the article - tend to lump too many "luxuries" in their "necessity" bucket. The $80.00 dry cleaning bill is outrageous. I am a professional trade consultant and have to wear business dress daily. But my dry cleaning each month is about $22.00, primarily because I wash and iron my own shirts.
It is amazing what a lot of people consider NECESSITIES! I know people of relatively modest means who take two full vacations a year (a week each in great locales), have multiple cell phones, excessive spa treatments, eat out 75 of 90 meals each month, the biggest and best entertainment centers (plasma TV, CD systems, etc.), excessive clothes, etc. These are people who are living a porterhouse lifestyle on a pork chop budget.
Then they wonder why their credit cards are maxed out!
Add to THAT the fact a lot of people absolutely have ZERO concept of interest rates. Too many people are content to pay the minimum each month. That is a KILLER on finances; a waste of resources!
I fully recognize there are those who truly had to resort to using credit card withdrawals for basics. My brother and his wife is an example of that. But we were able to trace the spending patterns back to some earlier exorbiant and unnecessary expenditures that helped push them into that trap. They worked their way out of it with a LOT of sacrifice and support from family/friends.
My main point is a lot of this is truly SELF IMPOSED.
Right on the money! "I maxed all my credit cards out, and then things got more expensive (who would have thought?)and now I can't live like all the people I see on TV"
The poor will always be with us, even when a democrat is in office. You just don't hear about it in the media then.
Cool it.
Some folks can't wash and iron their own "shirts", they just don't look right...
You said:
"...Our kids are a different matter. Jobs aren't plentiful in this area. And to afford housing, both people have to work..."
Well, if "jobs aren't plentiful", why don't they move to where jobs ARE plentiful?
There are certainly lots of good jobs in NYC for the well-educated and/or well-motivated.
A friend's daughter is a 27-year-old MBA, whose annual compensation exceeds $150,000. Funny thing. She seems to have no problem paying the "sky-high" rent on her Manhattan apartment.
Go figure...
NYC? No.
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