Higher energy prices blamed for rising debt
More than 4.81 percent of credit card bills went 30 days past due in the second quarter, a record high, according to the American Bankers Association. The delinquency figure from the first quarter was 4.76 percent.
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“There are a few different factors working to affect that,” said Brendan Vigorito, director of education and community relations with the Center for Financial Education, a division of Consumer Credit Counseling Services in Warwick. “There are a couple of factors working together that have far-reaching implications.”
The bankers association’s Sept. 28 report seems to contradict the findings of a recent Federal Reserve survey of 100 of the largest U.S. banks, which showed the consumer credit card delinquency rate rising to 3.7 percent from 3.68 percent.
The price of gas and other energy costs have risen 30 percent in the last year, but most incomes haven’t increased at that rate, Vigorito said.
“If the average American is doing their finances the same way they did two years ago, they’re going to find themselves in a crisis situation,” Vigorito said. Delinquencies are not likely to dip in the third quarter because interest rates are still climbing and gas prices are higher than they were in the second quarter.
The delinquency rate on personal loans, direct auto loans, indirect auto loans, recreational vehicle loans, marine loans and home equity loans all rose in the second quarter. Indirect auto loan delinquencies saw the biggest increase, from 1.87 percent in the first quarter to 2.08 percent in the second, a change of 0.21 percent.
Delinquency rates fell on property improvement and mobile home loans. Past-due payments on home equity lines of credit fell to 3.74 percent to 4.46 percent, a 0.72 percent change.
“If you don’t have a set spending plan you’re following, you could very well come up short at the end of the month” and not be able to pay all revolving debt bills, Vigorito said.
The bankers association said a composite ratio of closed-end installment loans went from 2.03 percent to 2.22 percent.
Reasons for bankruptcy vary across the board, Vigorito said. When money becomes tight, credit card payments or payments on other revolving debt may begin to slide.
“We know the average American household has credit card debt over $8,500, so we know it’s a factor (in declaring bankruptcies),” Vigorito said.
Delinquent payment on just one revolving debt account can lead to trouble with other accounts, even if they’re kept current.
A creditor may have a universal default rule. For example, if a consumer has five open credit accounts and the bill for one becomes past due, it could trigger defaults on the other accounts.
“Universal default has been around for a while,” Vigorito said. “More companies are now beginning to make it part of their policy. It’s just something consumers need to be aware of.”
Vigorito emphasized the importance of designing a spending plan, a service the Consumer Credit Counseling Service provides at no charge.
“An approach we like to see people take is approach personal finances like a business,” Vigorito said. “Analyze income streams and expenses and if you need to, make reductions.”
Consumers are gradually taking a more active interest in managing their finances, Vigorito said. He’s seen an increase in attendance of financial awareness seminars he conducts around the region in the past few months.
To reach the Consumer Credit Counseling Service, call 866-889-9347.
