Credit Card Delinquencies Skyrocket

An AP analysis found startling trends in the number of people falling behind on their credit cards. In October:

  • The value of accounts over 30 days late went up 26% from the previous year
  • Defaults rose 18%
  • Accounts 90 days late rose by 50% at several large lenders
  • Perhaps since it’s harder for people to tap their houses for cash, or struggle to make mortgage payments, they’re turning to the next available line of credit and finding out that whoops we can’t pay that one either. At the same time, the ever decreasing period between when a bill is issued and when it is due certainly doesn’t help matters.

    Unpaid Credit Cards Bedevil Americans [AP via alexmoskalyukblog]
    (Photo: mojojornjorn)

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    1. anatak says:

      It probably doesn’t help that national debt owed on credit cards is now approaching a trillion dollars.

      Nothing wrong with adjustable rate mortgages.
      Nothing wrong with financing new cars.
      Nothing wrong with credit cards.
      Until you enter the real world and the whole thing falls in on you. Debt just isn’t a plan.

    2. snoop-blog says:

      i don’t believe in credit cards. thats why i only go through loan sharks. like mickey midget, honest harry, or tank noneck.

    3. DrGirlfriend says:

      I’m not surprised, given the current mortgage situation. If your mortgage is stretching you to your limits, you may have been in a position to rack up credit card debt for the rest of your expenses. The lending industry as a whole is composed of parts that can directly impact each other. If you can’t pay one of your loans, chances are you can’t pay the others. And between credit cards, mortgages, and car loans, for starters, many people have several different kinds of loans.

    4. m4ximusprim3 says:

      Question for credit guru people:

      Will this eventually result in those of us who carry a balance (responsibly) having our rates jacked through the roof so these companies can stay in the black?

      I.E., should we add priority to paying off credit cards with lower rates to hedge against future rate hikes rather than investing the money for a higher current rate of return?

    5. theutopian says:

      It’s true. I’m in this group. 35% interest on a credit card I was never late on is unreasonable. The debt got so crushing that paying them every month became impossible. Is it my own fault? Yes. It spiraled out of control. Now I really don’t give a shit. I have no sympathy for these banks. Delinquencies only stay on your credit report for 7 years. Bankruptcy is not an option for anyone anymore. I’m young and patient. I’ll be able to buy a house in 7 years.

    6. SacraBos says:

      I’m not surprised either. Frankly, one of two things is probably going to happen:

      1) Due to increased fees, late charges, and rate increases, there is going to continue to be an increase in defaults. Which is going to severely hurt the banks. They have invested so heavily in consumer debt and fees.

      2) People will behave responsibly, pay off their credit cards, and live within there means. Which is going to severely hurt the banks. They have invested so heavily in consumer debt and fees.

      Gee, doesn’t look so good for the banks…

      It’s partly their own fault. When late fees, and other nonsense charges became a profit center, they started investing in defeat. And there’s no future in that.

      The Gawker image 1-Emily_BennettBeck728x90.jpg at the top is creepy…

    7. ARP says:

      I wonder how the CC companies will react. If they raise rates to help offset the deliquencies, then they’ll push more into deliquency. They wouldn’t dream of lowering rates, even though it would probably help them in the long run by allowing many to continue making payments. They thought they could cap the problem by simply making it harder to declare bankruptcy, but they underestimated many consumers desire or lack of ability to pay.

    8. SacraBos says:

      @theutopian: Fear not. For there may be good fortune for you. These delinquencies may get sold to a less-than-honorable collection agency. Okay, I’m joking, it WILL get sold to a less-than-honorable collection agency (is there any other?). Collect evidence. Sue with evidence. Collect damages on evidence. Profit.

    9. timmus says:

      This will surely mean that either (A) my FICO score will go up or (B) FICO score requirements will fall.

    10. timmus says:

      Also kudos to a couple of people for admitting trouble. This is a nice change from the occasional run of people tooting their horn about their punctuality and then moralizing on others.

    11. johnva says:

      We may well be looking at a “subprime consumer debt” crisis here. The banks may well respond by tightening the terms under which they loan out money, especially to people with poor credit histories.

    12. theutopian says:

      @Sacrabos: You’re right. It has. They call several times a day. But their calls are easy to ignore. Do they really think I’d be dumb enough to answer calls coming in as ‘unknown.’ The sad part is they are now outsourcing to India, so if they do bother to leave a message, you can’t understand it.

    13. SacraBos says:

      @theutopian: You should 1) Brush on your Fair Debt Collection (whatever Act that is) laws, 2A) Sue them for violations or 2B) Record the calls and blog about them! You’ve got lemons, might as well try to make lemonaide.

    14. GearheadGeek says:

      @anatak: Saying “debt just isn’t a plan” is as simplistic as the people who think “Oh, I can’t afford it so I’ll just put it on my card.” Debt may in fact be PART of a good financial plan. Just mindlessly racking up debt is of course a bad thing, and the bulk of people with huge credit card debts haven’t done any good planning, but you can’t dismiss it out of hand. That’s as bad as saying we should outlaw all guns because some people can’t be trusted with them, it’s a more complex issue than that. It just happens that lots of people with credit-card guns shoot themselves in the foot.

    15. pda_tech_guy says:

      Maybe if we all just stop paying them, they will go away!

    16. nutrigm says:

      “Recession means that people’s incomes, at the employer level, are going down, basically, relative to costs, people are getting laid off.” George W. Bush -Washington, D.C., Feb. 19, 2004

    17. Me - now with more humidity says:

      The banks brought this one on themselves by paying for the new BK law, then by instituting Universal default and onerous fees for things like signing checks with one’s left hand, not one’s right hand. As soon as you’ve been late a payment or two — it can happen when you’re battling other financial issues (it sucks, but it happens)– fees and interest have driven borrowers over their limit and the fees add up geometrically. There’s a point where it’s impossible to catch up again without a serious cash infusion. Is that what any of us want? Of course not. But it happens — no matter what is said by the holier-than-thou financial geniuses here who want anyone with debt to be publicly disemboweled.

    18. ShortBus says:

      @theutopian: Don’t be stupid and ignore the problems like I did. I kick myself regularly for sticking my head in the sand for so long over my past credit mistakes. Start your credit triage now before your debt problems become legal problems (again, like me).

      I highly recommend visiting [www.debt-consolidation-credit-repair-service.com] There are a lot of very knowledgeable people there willing to help (and without the cost of a credit repair service). [www.debtorboards.com] is also a good resource.

    19. anatak says:

      @m4ximusprim3:
      1) Don’t worry about credit card companies staying in the black. They’ll continue to find new and exciting ways to screw people out of their money. With the new bankruptcy laws, they’ll do just fine. And if they don’t, oh well.

      2) Don’t try to solve the credit card debt problem with math. If we were doing math, we wouldn’t have credit card debt. Its more about psychology now. List the debts smallest to largest. Pay minimum payments on all but the smallest and attack the smallest one. Once its payed off, roll that payment to the next smallest. And so on, and so on. Its the debt snowball. Doing it this way may mean that you pay slightly more over the time it takes to complete the snowball due to higher interest rates on certain debts, but you will gain the confidence from the quick wins to continue and eventually complete paying them off. Its not about tackling higher interest rates, its about getting the psychological advantage to actually complete the process.

    20. anatak says:

      @GearheadGeek: hrrmmmm… terrible analogy. I’m not suggesting we outlaw credit cards – our government actually has a tendency to do quite the opposite.

      You like associating guns with credit, fine. Carrying loads of debt around is not a plan, just like walking around with loaded guns in not a plan. You can justify it however you like – I have a stalker, I am a stalker, I live in a bad neighborhood, I am bad for the neighborhood, I’m compensating for something else, I have a mental condition, I feel safer, all my friends are carrying guns, I need to establish my FBI file early in life in case I want to use it some day. Still not a plan.

      Maybe you have a point, though. “Debt just isn’t a plan.” may be a bit too simplistic. I’ll revise.

      Debt just isn’t a good plan.

      Thank you for pointing out my oversight.

    21. Erwos says:

      @m4ximusprim3: Responsible people generally don’t carry a balance. Be very careful of your spending habits, and make sure they’re really sustainable.

      Theoretically, credit card companies are operating on a risk-return ratio. So, really, if your amount of risk stays the same, they shouldn’t be raising your rates. But if the credit card company perceives you as risky (eg, you have a mortgage), they’re going to think about jacking up your rate.

    22. RGISMYFAVORITECANADIANMORMON says:

      @ShortBus:
      I had to start with consumer credit counseling service. [www.cccsinc.org]

      Eight years of hard college and graduate spending and making $5.50 an hour or less at internships and student jobs equalled a big problem for me.

      Plus, fancy legislation made my two day late payment turn into a 10% APR jump on a different card with the highest balance.

      I’m still young, and bankruptcy wasn’t an option. Maybe it was, but I wasn’t going to consider it. It’ll take me 4 years, but I will pay off my debt. And I’m really going to pay it, not just slack off and settle, or cop out and weasel out of it. I hate credit card companies for sure, but I hate it when I hear about people getting out of paying debts they created, when somehow, I managed to find a way.

      Anyway, CCCS has been working alright for me, but I’m only a few months into the program. Maybe when I’m 30, I can start thinking about a mortgage.

    23. MsClear says:

      I’ve been surprised recently to see my interest rate falling on the one card we use. It’s gone from 11.99% to 11.49% to 11.24% on the most recent statement.

      We currently are carrying about $700 in credit card debt. I’m not pleased with it, but we’ve gotten hit too many times with car repairs lately.

    24. spinachdip says:

      @ShortBus: I piled up quite a bit of debt as a result of hard times, poor planning and irresponsible spending. I skipped the credit counselor and went straight to the credit card issuer and told them, “Hey, I can’t pay this off at the rate you’re charging me” (well, not in so many words).

      The things, the banks are willing to work with you if you’re up front and tell them you have problems. With me, basically, they had choices: (a) keep billing me at 35% and take the risk that I’ll get discouraged, decide I have nothing to lose and default, and wait 7 years for the credit score to clear up, or (b) offer me a manageable payment plan and keep getting steady income from me.

      I won’t be debt free for a couple more years, but it’s already a load off my back. Wish I’d talked to them sooner before I missed a few payments.

    25. m4ximusprim3 says:

      Ah, perhaps I should have clarified my situation further, as I would think it’s one more people my age are in.

      I used to be fiscally irresponsible (ah, college), then wised up and am now trying my best to get out from under everything, while at the same time planning for the future.

      I have one card onto which I have BT’d all of my outstanding debt at a low balance transfer rate (~4%). I’ve never actually been late on anything, so my credit score is good. Now that I’m gainfully employed, I try to pay this card off semi-agressively, but I also put a lot of “extra” money into my 401K rather than paying off my debt, as it appreciates faster than the credit card debt.

      My question is, do you think it would be a good idea (given all the CC instability) to start to go after the card more than, for example, the 401K, to avoid future credit card company snafus.

      Sorry for the long post, but I think it’s probably relevant to a fair amount of us 20-somethings trying to turn our situation around :)

    26. pastabatman says:

      One of the things i think is important to remember is that all CC debt is NOT people living above their means. a SHOCKING percentage of CC debt that leads to bankruptcy is health care costs.

      Take a health plan that has deductables and copays (by the way which tend to more affordable). In the event of a health crisis people WITH insurance can be liable for mucho money. Add to that the possibility that said crisis lands you with lost wages. It can rack up fast when you got bills to pay, yeah?

      Please add to that relaxation in laws regarding the % rate in interest that CC companies an charge.

      of course tons of people are careless, but more than you think are not.

      I literally thank my lucky stars that i have been in a position to be debt free, cuz sometimes luck is all that’s on your side.

      sometimes.

    27. theblackdog says:

      Correct me if I’m wrong, but didn’t they change the laws so that delinquencies would not drop off after 7 years, either they got a longer time period or the CC companies found a way to reset the clock?

    28. ShortBus says:

      @m4ximusprim3: If you’re CC debt is only clocking it at 4%, then you absolutely ought to be dumping as much as possible into your 401k. You’re almost certainly going to see a return of >4%. The fact that it’s tax deferred and your employer may match it (hey! free money!) is just gravy.

      Google around for a 401k calculator. You’d be amazed at how much the compound interest adds up as you near retirement age. Assuming you’re in your mid-20’s an extra $2k/yr in contributions will give you at least $500-700k more when you retire. Starting the 401k at age 25 instead of age 29 will net you an extra million.

    29. ShortBus says:

      @theblackdog: No, the laws haven’t changed. Derogatory credit information will remain on your credit report for a maximum of seven years (it can be less though, that’s up to the individual credit reporting agency). Positive payment history for accounts that are closed will remain for 10 years. Positive history for open accounts will remain for as long as the account is open (obviously).

    30. johnva says:

      @MsClear: Your rates are probably tied to the prime rate. With better cards they will often fall when the Fed cuts rates (as long as you have a good credit history).

    31. m4ximusprim3 says:

      @ShortBus: Yeah, thats what I thought, but the whole “everyone’s bailing” thing has me scared that they’re going to see someone like me who always pays as a big fat goose :)

      I guess untill that happens, I’m still better off saving for retirement. Thanks for the advice!

    32. bohemian says:

      If people have the choice of house, gas to get to work, food,lights or paying a credit card bill guess what one loses.

    33. vdragonmpc says:

      A lot of the problem has been touched on regarding “universal default” and other “gotchas”. I never will understand a credit card company changing my rate over a percieved issue UNRELATED to the company. I had Chase pull that. Best thing was I had the money put aside to pay it off in savings but I needed the credit card purchase protection. It was odd I had no balance and the card stayed at 9%, I made 2 large purchases and wham 14% month 1 and then when I called and raised hell not only did the rep tell me there was nothing that could be done… She informed me that it would be continuing to 21% because of something I had done… (I checked my report and NOTHING was there negative)
      I asked to pay it off and close the account. She said I could send in a letter refusing the changes and could no longer use the account, I asked her isnt that the same as closing the account… She was quiet and said yes. Then zapped me with a 20$ check fee.
      I will not do business with Chase, Capitol One, Sears (see chase) Citibank, Wachovia, Fleet, MBNA or BOA. All have tried some shenanigans over the years with friends, family or me.
      USAA has been very good though. So have the local credit unions and smaller LOCAL banks.

      V

    34. synergy says:

      Once upon a time I owed $15K. That’s about what I was making annually. Come March *fingers crossed* I will pay off the last credit card. It can be done, but you need to not live in a McMansion, drive an Escalade, and pop out kids every 9 months.

    35. algormortis says:

      Drive a crappy car that you paid $2500 for…in cash.
      Work a lot of overtime, make more cash.
      Live in a crappy apartment, you don’t spend much time at home in Seattle anyhow, because we have lives.
      Ride the bus when you can. Employer buys your pass!
      Shop at big suburban food stores for better sales.
      Drink drip instead of lattes during the day. Makes that 6pm latte extra awesome.
      Drink beer when you go out. Mmm, beer. Foamy.

      Put it all on the Amex and pay it in full at the end of the month.
      If they don’t take Amex, put it on the USBank WorldPerks Visa. Pay that in full at the end of the month, too.
      If they don’t take either, pay cash.

      Overpay your student loans, check the box for payment against additional principal.

      Sure, I don’t have a nice car like my friends. I don’t have a boat, or a house, or anything blingy. I also have no consumer debt and went to Osaka in First on WorldPerks miles a couple of months ago. And there, I crashed on a friend’s couch. Sure, some people say I’m thrifty, but they sit up at night gnashing their hands about what to do about this time bomb, and i feel bad for them because I care about my friends, and the country is under massive corporate and political mismanagement at the executive level…but debt is very real and isn’t “i never have to pay this, yay!”

      Fear not, they’re starting to ask me how to buy good late-90s Hondas. I think they’re coming around.

    36. anatak says:

      @m4ximusprim3: You should absolutely pay off the cards – aggressively. Its great that you’ve got the 401k going, its great that you want to contribute as much as you can, BUT so long as you have that debt lingering out there, any 401k gains are hampered by the losses of that debt. Thats the financial side. On the personal side – Its a risk you don’t need and apparently don’t want. Get rid of it. Contribute up to the match on the 401k. Use the rest to pay down the debt – aggressively. Once out of debt, open a Roth IRA and contribute to it until you hit 15% between the 401k and Roth. If you max out the Roth, then go back to the 401k.

    37. regtech says:

      Some of the blame has to be put on the credit cards. A friend works for a major bank and they are actively solciting people who have had accounts charged off because of non-payment and chapter 7 to give them new credit cards. Of course, the people who are offered the cards should have the basic common sense not to accept them. The credit card industry should have the common sense not to offer credit cards to individuals they have already lost money on. It is sort of like throwing money in a fire to see if it burns a second time. I don’t feel sorry for the people or the credit cards companies.

      This is the same thing that happened in the sub-prime lending scandal, people were given credit and took credit for loans they could ill afford. One of the worse cases I heard of was a woman with an income of 20k per year getting a loan for almost a million dollars. She felt she had be tricked and deceived. She was crying because they were going to foreclose on her house. Do I feel sorry for either the banks or the people who were foreclose on? Not just no, but hell no!

      What is even sadder is the America people will end up paying for the bad loans and the credit card losses when the government has to bail out the lenders.