4.81% of Credit Card Accounts Are Late
The American Bankers Association reported that the percentage of credit card accounts overdue by more than thirty days reached 4.81% for April-to-June, beating the 4.76% reached in January-to-March this year. This doesn’t even take into account the number of accounts that will go 30 days late because of Hurricane Katrina and Rita so they anticipate the percentage to increase even more. When you couple this with a savings rate that’s negative (-0.6% to be exact) in July and you can do the math… we’re in some serious trouble. Not only are we spending more than we make, we’re dipping into savings, and we’re not paying our bills - this is not a good situation.
Some experts make the case that higher gasoline prices are tightening budgets and forcing some to use credit cards to get by. The last time I checked the folks who are missing credit card payments aren’t the low income folks, who could make an honest use of a credit card to hold them over (credit card companies don’t offer unsecured credit accounts to most low income families). I would bet that a majority of the people who are missing payments are the ones who spent their unsecured credit irresponsibly and now find their income trimmed a bit because of gasoline (and other necessities).
What is the solution? There is no simple solution but one suggestion is that the folks who are spending beyond their means (if you are buying non-necessities on credit and can’t make the full monthly payment) should trim their needless expenditures and show fiscal restraint. As we’ve learned, you can’t rely on bankruptcy laws to fix your debt problems. If you need inspiration, I advise reading the Carnival of Debt Reduction each week.
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6 Comments - Share Your Thoughts
I really don’t understand the figures on debt and low savings rate for Americans. As a person who has no debt and at least a million in savings I don’t understand it. I’m not even counting my home. And I’m just an average guy. If the figures are correct, America is in bad shape. However, I believe the data is incorrect. I look around me and a lot of people have good homes and cars. They don’t look like they are hurting. I don’t know people who live from paycheck to paycheck. Although I know somewhere there are people living that way and there are homeless people. But segments of the population are mentally ill and there is a massive drug problem here. However, if ordinary Americans are spenting too much, it’s not a bad thing. It’s their choice. High debt and low savings is how Americans maintain a good lifestyle.
The world is a big place.
The savings rate numbers are highly questionable, since they don’t count growing equity in a house as “savings”, and that’s the largest component of most American families’ net worth.
It’s not that they’re questionable, it’s that some people don’t agree with what they consider to be savings. I don’t believe equity in your home can be considered savings because it’s not liquid but I don’t think they consider brokerage accounts savings either and many Americans put their savings into index or mutual funds instead of a savings account. It does identify a growing trend that there are a lot of people who actually don’t save at all, not into their home, not into a brokerage account, and not into a savings account.
John believes high debt and low savings is how Americans maintain a good lifestyle…
I don’t consider home equity savings because it’s at the whim of the market. I think savings is an active rather than passive process. Although I have to say that pre-paying a mortgage, etc should be considered some sort of savings, since that is an active measure to increase net worth.
I have a feeling that a lot of the people late on their credit cards this month are the ones who shelled out more than they should have on some big gas-guzzler during the recent employee-discount sales, or maybe those who bought them a year or so ago not thinking about the fact that gas may not stay at $1.50. So definitely not poor Americans, even though increases in staples hurt them more overall.
“I don’t consider home equity savings because it’s at the whim of the market. I think savings is an active rather than passive process. Although I have to say that pre-paying a mortgage, etc should be considered some sort of savings, since that is an active measure to increase net worth.”
Equity in the house and how much of a mortgage is left is pretty much the same thing.
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