Credit counselors and financial analysis in the US ad the UK are seeing evidence every day that credit card debts are increasing. Soaring fuels costs, rising food prices and climbing energy bills are all being kept at bay with credit cards. Shortfalls on mortgage repayments are also being made up with cash from credit cards. Many of these debt soaked consumers are already struggling to make their minimum monthly repayments.
More than $1 trillion is held on credit cards in America. In the UK, debts of more than pounds 50 billion have been run up on the plastic. Across the world, somewhere between $2.3 trillion is owed on credit cards.
Up to now, the credit crisis has passed by without plastic gong into meltdown. Statistics have shown steady levels of arrears and suggested that many consumers have been successfully paying off part of their balances. Now there are increasing signs that this last breakwater, shoring up the economies of the western world, is about to crack under ever-increasing strains.
Credit cards are definitely going to be one of the next big problems. Research shows that everything started to fall off early 2008 and that should begin to show up in bad debt charges by the end of the year.
The US Federal Reserve has also been warning credit card lenders not to push their luck. The regulators are fearful that the economy could crack if consumers start being hit with higher fees and steep interest rate rises. The problem may be even sharper in Britain.
Current market prices suggest that over 20% of the money owed on British credit cards is unlikely to be paid back. That would be almost three times higher than the previous record for bad credit card debts, eclipsing the problems witnessed in the last housing crisis of the early 1990s.
Already stories are heard about people using their credit cards to keep up with their mortgage payment. If that is what is happening, it is a big red warning sign. The recent Bank of England credit conditions survey revealed that banks were surprised by the level of bad debts run up to their credit cards in the second quarter of the year. Demand for credit cards also increased as banks tightened their lending criteria across the board.
The UK’s debt strapped consumers currently owe a staggering pounds 56 billion on credit cards. The payment network that supports the British banking system, this could climb to pounds 160 billion if those 31m cards are used the max. The figure takes account of all measures already taken by credit card issuers to clamp down on borrowers by rejecting card application and cutting credit limits.
Another research suggests that 15% of the British public is now behind on at least one bill of some kind or another. Of these in trouble, 38% say they are behind with utility bills or council tax, while 31% cite credit cards as their problem.
Problems in credit card debts have the potential to send a new wave of panic through global financial markets. Roughly $600 billion of debts run up on credit cards world over swill though the global financial system. Credit card debts were packaged up and sold on by banks during the boom years, just like mortgages and car loans.
One needs to accept and use a credit card if he is in big business and has to do a lot of sales promotion entertainment for his own business or for his employer. Otherwise a credit card is money losing proposition and anti-savings device.