are defaulting on their credit cards at the highest rate
in nearly a year. Experts blame the improving economy:
Consumers are feeling more confident in their overall
financial situations and theyíre loosening their purse
strings because of it. That confidence led to higher
retail sales through the holiday season, but the credit
card bills are coming due, and people are leaving them
unpaid at an alarming rate, according to S&P and
Experian. Another factor in the uptick in default rates
is the increased willingness of financial institutions
to extend credit to those who may struggle to pay it
the default rate was 0.91 percent in December; Chicago
had the default index value of any U.S. city at 1.15.
a tough time of year to pay down debt, because holiday
bills are due but many families are also planning for
spring and summer vacations, said Michael Foguth,
founder of the Foguth Financial Group in Brighton, Mich.
Foguth believes that more Americans are prioritizing
vacations due to improving confidence about the economy,
and spending more on smaller indulgences like eating
out. But the desire for date nights or a weeklong
retreat are often too rich for consumerís budgets, he
reality is, if your paycheck doesnít support your
spending, youíre going to default," he said.
Foguth thinks that social media has enhanced our desire
to "keep up with the Joneses" ó another
reason weíre spending money we canít afford.
call it the ĎVegas syndrome,í" he said.
"People always tell you how fun their vacation was,
but they donít tell you how much money they
itís not just an improving economy or the thrill of a
getaway that is leading more people to rack up debt they
canít pay. Another reason for rising credit card
defaults, observers say, is that banks are loosening
lending standards and making it easier for more people
to get more credit. Consumers have taken advantage of
that trend, run up their balances ó and run into
lot of the borrowers who are opening up lines of credit
now are "subprime" ó those with bad or
limited credit history or low credit scores ó noted
Bruce McClary, spokesman for the National Foundation for
Credit Counseling, an organization that provides access
to financial counseling services.
donít think weíre ready to sound the crisis alarm
right now, but itís certainly something that deserves
our attention," he said of the rising defaults.
borrowers generally pay higher interest rates, so it
tends to take them longer to pay back debt. And McClary
said credit card interest rates should go up this year
as the Federal Reserve raises the key federal funds
rate, which could make it even more difficult for
borrowers paying higher interest rates to keep payments
really important not to let things fall far
behind," he said. "Missing even one payment
can hurt you." The result can be a higher interest
rate, late fees of at least $25, and a possible hit to
your credit score, he said. Missing credit card payments
can be especially dangerous for consumers, he said,
because credit card companies can move quickly to impose
not like a traffic violation where you get a
warning," McClary said.
recommends seeking help from a credit counselor as early
as possible, a service that can be found in every major
city at low- or no-cost, he said.
if youíre well down the road to default? Foguth
recommends trying to negotiate a lower interest payment
plan with the credit card company, or even an
interest-free period. Credit card companies have an
incentive to work with consumers, he said, because if
they donít pay their bills, the debt will be sold to a
debt collector, a scenario in which credit card
companies only recoup pennies on the dollar.
the most drastic step that Foguth recommends when credit
card debt gets extreme?
the option of letting them all go," he said.
"Closing cards (while negotiating a payment plan
for the balance due) may be the only smart move