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Credit Card Debt Climbs Worldwide

Americans falling behind on payments; other nations' debt surging

By Martin H. Bosworth
ConsumerAffairs.com

December 25, 2007

The AP surveyed 17 large lenders and credit card issuers and found that payment delinquencies of 30 days jumped 26 percent from 2006, to a total of $17.3 billion. Delinquencies of 90 days or more were up 50 percent, and defaults, where the lender writes off the debt as uncollectable, surged 18 percent to $961 million.

Top retailer Target reported a spike of "charge-off" bad debt in its $8 billion credit card portfolio, from 6.42 percent to 7.05 percent, but claimed this was a normal cycle of the holiday shopping season, as consumers run up debt to pay for gifts and pay the cards down in the new year.

Credit cards have been one of the few reliable revenue generators for a financial industry battered by the American mortgage market collapse and a worldwide credit crunch.

Interest rate hikes and late fees have continued to bring in money for lenders even as they lose their shirts on Wall Street. Cards with particularly predatory terms and "gotcha" fees have been issued primarily at "subprime" markets, targeting black and Hispanic borrowers particularly.

But American consumers of all stripes, who were formerly using equity in their homes as cash machines to pay off credit card debt and fund other big-ticket purchases, simply do not have that resource to call on as home values sink and the ability to refinance has disappeared.

The new bankruptcy laws have made it much tougher for Americans to discharge credit card debt, requiring them to submit to a "means test" to determine if they have any money available to pay their debts.

If they are determined to have even $100 above the level of necessary expenses for food, clothing, and shelter, they are required to pay that to their creditors.

A global problem

Increasing credit card debt is by no means limited to the United States.

Australians' outstanding credit card debt rose to $41 billion in October, and a survey of Australians found 54 percent of the respondents used their plastic to pay for necessities between paychecks.

Canadians are even more crushed by credit card debt. A recent survey found that 25 percent of the respondents had credit card debt between $10,000 and $40,000, and many of the respondents not only had no savings, but no budget set up for their income.

The global increases in debt could lead to even more defaults around the world, which could increase problems for big financial firms that package credit card debt and sell it to investors much as they did mortgage-backed securities.

If these securities collapse as mortgage loans did, that could lead to even more writedowns for financial lenders across the globe, increasing the risk of recession in America and an economic slowdown abroad.

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