Posted on 05/21/2016 11:10:01 AM PDT by MarvinStinson
Today’s Wall Street Journal report on record levels of credit-card and auto-loan debt sound like a stroll down Memory Lane:
U.S. credit-card balances are on track to hit $1 trillion this year, as banks aggressively push their plastic and consumers grow more comfortable carrying debt.
That sum would come close to the all-time peak of $1.02 trillion set in July 2008, just before the financial crisis intensified, and could signal an easing of frugal habits ingrained by the recession.
The boom has been driven by steady economic conditions and an improving job market that have made creditworthy consumers less reluctant to take on debt. In addition, lenders have signed up millions of subprime consumers who previously weren’t able to get credit.
Because many creditworthy consumers are still cautious about spending, lenders are turning more aggressively to subprime borrowers. Lenders issued some 10.6 million general-purpose credit cards to subprime borrowers last year, up 25% from 2014 and the highest level since 2007, according to Equifax.
As the saying goes, history repeats itself — the first time as tragedy, the second time as farce.
Auto loans also hit a record $1 trillion in the first quarter of the year, although it’s not clear how much of that relates to subprime lending. Auto loans are at least somewhat secured by the vehicle itself, but credit cards are almost always unsecured and have high interest rates to cover other losses.
It’s those high interest rates that have incentivized banks to jump back heavily into the subprime markets, as traditional secured loans generate much less profit thanks to persistently low rates.
This time, though, some banks are at least requiring deposits to cover the spending limits on the cards. Why this would appeal to cardholders over simple debit cards is somewhat murky, though. That would be the rational way to “secure” a Visa or Mastercard, as they do not allow a cardholder to spend more than the account balance — plus it doesn’t result in interest charges. Consumers who need to rebuild credit might opt for these products, but it’s a safe bet that this doesn’t represent the bulk of subprime credit-card lending.
bmp
Is that like those $300 limit credit cards that come pre-loaded with $295 in fees? Seems like you’d be better off with a $300 bank account and the debit card.
while credit card balances may be at an all time high, that is not necessarily a bad thing. I purchase almost everything on a credit card and write one or two checks per month. I buy lots of stuff at one or two merchants and from on line vendors. it is easier to buy on the plastic than to fool with cash or manually write checks.
Given the increase in online sales it logically follows that card charges have increased.
I never see my vendor payments because they are deposited directly
the old rules no longer completely apply
You’re not carrying a balance, though, and that’s what has increased, returning to pre-crash levels.
the old rules no longer completely apply
Same with credit.
There are two problems (as I see it) with credit cards.
One, if you do not pay it off each month, then everything you buy is more expensive (the interest charges).
Two, if you carry a large balance on your credit card (besides the interest) you are risking your future if you should lose your income.
Every one makes up their own mind as to how much credit they can afford to carry (personally I think it should be zero), just be sure you understand the risk.
If the U.S. government can borrow its self into prosperity, why can’t we? /sarc
We have one credit card which we have for emergency only. Have never used it. Received 14 offers in the mail this past week inviting us to apply for another one. Opened one just for grins - up to 24.75% if we have their card and carry a balance. Just ridiculous. Shredded it along with the rest.
Well, this is part of discussions of good debt/bad debt.
Mortgage debt is ok, because you are acquiring a tangible asset. Assuming you can’t just pay cash for a house, mortgage debt is a responsible form of debt.
Credit card debt is troublesome because if you can’t afford to pay the bill each month, you run up high interest charges. And I would question if you can afford or need the items you buy with a credit card, if you can’t afford to pay off each month.
I may get flamed, but, even a certain amount of student loan debt can be good debt, if, you are getting an education and training in a field for which you will qualify for a good paying job, which enables you to repay that student loan debt.
So do we, but we pay off our credit cards every month, so there's never an outstanding balance on which they can charge their usurious interest rates. That isn't credit card debt as I see it. It's simply using the cards as a convenience and getting the use of their money for as much as 30 days. We even put as much as the dealer would allow on our last new car purchase (I think it was $8,000). So we got airline miles or whatever it was that the card was offering, but when the bill came at the end of the month, we paid it in full. And the funny thing is that these kinds of purchases actually strengthen your Credit Score. Right now I'm at 855.
years ago, I had only two credit cards. Both were very high interest (36%) and the interest started the second you made the charge. If you wanted to pay off the statement balance, you had to call them to tack on the interest charges, otherwise the interest would draw interest the next month).
thank God those cards are paid off and the accounts were closed years ago (I closed them because even if I didn’t put a penny on either card, there was a $20 per month (per card) “maintenance fee” and each card carried a $150 per year membership fee. If I didn’t put a penny on them, I owed them $780 per year).
Nowadays I have four cards and haven’t paid interest in over two years. I got a zero interest card (for 15 months) from my bank and just paid it off since interest kicks in next month.
I also just got another interest free card with a five figure limit but only owe $1000 on it. I could pay it off with savings, but why? It’s interest free.
I do put about $10 on each paid off card per month just to have the timer reset. (they can cancel you for inactivity), but all balances are paid off monthly (thus, no interest).
Thank God the girlfriend is gone. She sucked me dry (and not in a good way). Ran up my credit cards, ran me into debt. I’m now in the best financial shape of my life, although I should have started this years ago.
It feels good doesn’t it.
If you are in debt you put yourself into bondage to those that hold the debt. You were in worse shape than I was when I woke up to what my credit cards were costing me. I have not paid interest on a credit card for close to 30 years.
Oh, by the way, the credit card companies still make money when I charge (the merchants has to give up about 5%, also I believe it is in their contract that they can not give a discount for cash payment.
I agree. A good degree in a STEM field can yield good results income-wise. Alternatively, my 3 daughters majored in marketing and all three would up with exceptional sales jobs. My oldest daughter (who worked full time to pay as she went) had a job with a base of $55,000 but her commissions put her into the $140,000-$175,000 per year range. she worked has a*s off, but it's paid off. I recently saw a thing on facebook about a female student who is for bernie because she acquired $226,000 in student debt. She majored in "Speech Pathology" and is worried she'll never make enough to begin to pay on the loan. she wants Bernie to forgive it. Now, I'm not a rocket scientist, but a speech pathology major will never make $25k per year in their life. Add normal everyday expenses (rent, car payment, cell phone, heat, etc.) and she's in a bad way. My view? She shoulda thought about that beforehand. She's now stuck and wants everyone else to pay the bill.
It feels damn good.
I’m now getting mail solicitations from a certain company I shall not name, for one of their Platinum Preferred/Freedom cards (or a very close name to it).
I would NEVER take their card even if they gave me a $100,000 limit and 50 years interest free because, years ago I got a card from Washington Mutual at 9.99%. This company bought WM and within 30 days closed the account and upped the rate to 32%. I had a $5800 balance on a $6000 card.
I called them and they basically told me to go to he*l. I swore if I was ever in a position to get their card, I’d tell them to pound sand.
I’m doing that and THAT, my friend, feels good.
No, this is about balances going higher and higher partly due to interest and fees not about monthly promptly paid-off charges.
If the government can do it, why can’t everyone else?
Do they count credit cards that get paid off every month as credit card debt? I didn’t think they did.
I don’t understand credit card debt that one pays interest on, not at all. With the current and maybe forever no interest paid on savings, it makes no sense to be paying the bank high interest....it’s IMPOSSIBLE to catch up in the future.
Ford is offering 0% financing for 72 months plus $1000 (plus a military/first responder rebate) on new F-150s.
Tell me their sales aren’t down.
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