Rising delinquencies on credit card loans are hurting banks, potentially leading to even tighter lending standards which, in turn, threaten to limit credit availability to a wider range of consumers and dampen our country’s economic recovery. Yesterday, consumer credit bureau Equifax reported that new credit cards issued have fallen by 50% since July of 2008. On the heels of that release, Capital One reported today that its annualized charge off rate rose to 9.77% from 9.32% in August, a fairly large step in the wrong direction at a time when more and more “experts” are signaling the Greatest Recession is nearing its end.
Consumers, the somewhat degrading term used to describe the citizens of our country, continue to be under stress as unemployment hoovers near 10%. Historically, credit card defaults tend to correlate heavily with unemployment and, should the economy truly be recovering, default rates should top out and begin to decline. In an ideal world, this would translate into a loosening of lending practices and a greater availability of credit. Unfortunately, banks are dealing with a two headed monster: record defaults and new credit card legislation. If the former wasn’t making life difficult enough for lenders, the latter surely is the proverbial nail in the coffin.
Ultimately, what is most troublesome is the fact that the 90% of Americans who are both employed and paying their credit card bills are dealing with increased interest rates, lower credit limits, and the inability to transfer high interest credit card balances to 0% balance transfer credit cards. Without the 0% balance transfer option, consumers who could be significantly reducing debt are instead struggling to fight off higher interest expenses, funnelling money that could be spent enjoying and improving life into the bottomless pockets of credit card issuers. (Note: By bottomless, I refer to a giant hole where money disappears.)
For the time being, then, the best option for consumers is to seek out 0% balance transfer deals where they can and work on reducing credit card debt before the Prime Rate-i.e. the variable number which will cause credit card interest rates to rise in the not to distant future-makes credit card debt even more expensive to maintain.
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