New York – Rising interest rates and gasoline prices are putting the squeeze on consumers’ budgets, and many are finding it harder to keep up with bills.
Credit-counseling agencies are seeing droves of consumers.
An important measure of consumer financial distress, late payments on credit cards ticked up in the first quarter, according to figures from the American Bankers Association. The Washington, D.C.-based trade group said the percentage of bank cards 30 or more days past due increased to 4.40 percent in the January-March quarter from 4.27 percent in the final quarter of 2006.
The Federal Reserve’s decision last week to raise short-term interest rates for the 17th consecutive time will again boost borrowing costs for consumers, likely prompting more delinquencies on credit-card bills – as well as on auto loans and mortgages.
The slowing economy also is depressing income growth, so a greater percentage of take-home pay is going for necessities and less is left over for debt payment.
Catherine Williams, a credit expert with Money Management International, a Houston-based financial counseling and education agency, said rising costs for gasoline and utilities were only part of the explanation for rising credit-card delinquencies and increased consumer financial stress.
“People refinanced (mortgages) six months or a year ago, so the ‘house bank’ is empty,” Williams said. “Most can’t go back and tap their home equity again.”
In addition, she said, consumers can only juggle debt payments for a while. As she put it: “You let the car payment go one month, then the house payment. Then you make a lot of little creditors happy for one month, maybe for two months. Then it becomes obvious that you have to catch up on car payments, and everything else slides.”
Williams called it “a dangerous strategy” because consumers who let accounts go delinquent risk harming their credit ratings. A poor credit rating makes it harder to get loans and can force them to pay higher rates on the loans they do get.
“Now we’re seeing a new crop of people starting to get into trouble,” said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla. “They can’t keep up. They’re the ones most affected by increased gas prices and higher rates.”
Signs of credit trouble
Juggling payments is one of the leading indicators that a consumer is in trouble. Other telltale signs:
You make only minimum payments month after month.
You’re taking cash advances on one credit card to make the minimum payments on others.
You delay, or are late on, important payments, such as the monthly mortgage.
You put off necessary activities, such as medical appointments.
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