Credit card lenders charge off unpaid debt
You heard of course that Americans are saving more, borrowing less and yes, oh yes, finally paying off their credit cards, bringing national credit card debt to the lowest levels since a very long time ago. Ya, right, according to a new report by CardHub.com, consumers are happily dumping debt instead of paying it off. That is why you see such steep drops in credit-card balances - credit card lenders are charging off bad debt.
While credit card debt has been falling for 16 straight months, which is unheard of, that is not happening because consumers are paying off their financial obligations. Rather, they are simply walking away from the debt, forcing credit card issuers to charge off as much as 90% of that reported drop. And can you blame them, if people leaving their homes leaving in droves, who cares about some unsecured credit card debt.
U.S. banks charged off a staggering $83.3 billion in credit card losses last year. That makes up the bulk of the $93.2 billion drop in outstanding credit card debt that was reported by the Federal Reserve for 2009. And if you look at the chart below, showing how much incomes have dropped across United States in the last few years, you will quickly realize that many consumers simply have nothing to pay they debt off.
As you can see, shaded areas indicate recessions, and the ongoing one is the widest and I dare to predict, will get much wider.
Last year, outstanding credit-card debt dropped by a very large amount of $93.2 billion to about $876 billion, according to Federal Reserve data. During the same period, credit card debt charge-offs added up to $83.3 billion, meaning only about $10 billion of the drop is attributable to consumers paying off their debt.
Here is another chart that shows new housing starts. If you believe that 5.9% drop announced last Tuesday, March 16 can be attributed to weather and recovery is underway, take a good look. While some are saying that less construction is helping to unload all the unsold inventory, understand that with almost 10% of the U.S. mortgages now in arrears and almost 5% in actual foreclosure, we have a very long way to go.
These charts and many more can be found St. Louis Fed Economic Research site.
Thu Mar 18, 2010 10:03PM | Copyright: www.bad-credit-advisor.com | More in Personal Finance | Comments (0)
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