A record spike in credit card delinquencies is highlighting the potency of the worst economic crisis America has faced in decades. Findings from first quarter reports, according to Moody’s Credit Card Index, indicate that more cash strapped consumers were past due in their credit card payments than over the fourth quarter of 2008.
Consumers often rely on credit card usage to help them fill the financial gap from paycheck to paycheck. Since the national rate of unemployment is at its highest point of 9.6 over the past 26 months, more people are using plastic to get them through until landing their next job. The problem remains that it is taking much longer than average to find gainful employment.
According to MSNBC.com, “Delinquencies on the value of all card debt soared to a record 6.60 percent from 5.52 percent in the fourth quarter. The rate of delinquent accounts rose to 4.75 percent from 4.52 percent, near the record 4.81 percent in the spring of 2005.” Moody’s indicated that changes to bankruptcy legislation in 2005 increased the pace of charge-off (the event of a creditor writing off an outstanding debt as a loss) at that time.
The retracting economy, job loss and crumbled housing market are all factors contributing to the delinquency in prompt payment for consumer debt. Not only are the credit card bills mounting for consumers, but according to the American Bankers Association, loans including auto, home equity, home improvement, RV, mobile homes and marine are being neglected at their highest rates since 1974.
Most of the United States rely heavily on credit cards to survive, however, with people continuing to losing their jobs and unable to pay off their credit card bills - this may be a big recipe for disaster. What do you think will happen to the economy in the near future as a result of the rise in delinguencies on credit card payments?