Credit Card Debt Increases Along with Rates
By Ace Reporter
As the recession grinds on, more people are being forced to rely on their plastic, and increasingly skittish banks are cutting back on how much they’ll lend. Now, more and more credit card debt is going delinquent and the middle class is starting to feel the pinch, experts say.
Everyone is Seeing the Change
Despite a brutal economic downturn, Jack Gordon religiously pays more than the minimum on his four credit cards as he tries to keep Salvatore’s Italian Restaurant in Cape Coral afloat.
Still, the amount he can borrow on the cards has slowly been cut back in recent months.
”They have all sent me notices that the amount of money I can withdraw has been capped and my interest rates have all gone up,” Gordon said.
Gordon is far from alone.
The credit card crunch is affecting people in different ways as economic conditions deteriorate and borrowing limits are reduced.
Those Experiencing the Problems
- The Pennyworthys
Maggie Pennyworthy and her husband Jason, both 76, of Lehigh Acres, are fighting to survive as they deal with the aftershocks of reduced credit limits and unemployment.
”Until a couple of months ago we were never late, paid on time, nine times out of 10 paid more than the minimum,” Maggie said. “Then they started increasing the interest and limiting our ability to borrow. Now we’re behind the eight ball. We’re on Social Security and we’re fighting.”
Jason is making a little money by taking aluminum cans and other items to a recycling business while he waits for a job at a local courier service. His credentials are good: 25 years driving a bus in New Jersey, where the Pennyworthys lived before retiring here.
Maggie said she’d like to pay off the credit cards, but Medicare supplemental insurance and the mortgage come first.
”There are certain things I can’t let go,” she said.
- Carson
In Fort Myers, Harvey Carson is also finding credit card problems are aggravating an already dismal business climate for the Sub & Pub he owns at Clifford Street and West First Street, just west of downtown.
The High Point Place condominiums sit nearby with only a few summer residents. Road construction plus city employee layoffs have also taken their toll, he said.
”It was tough enough to pay them in this bad economy before,” Carson said. “You can imagine how tough it became” after he missed two payments on one card eight months ago.
”All of a sudden my interest rate went from 9.99 percent on one card to 27.99 percent” and the other cards soon followed suit, he said.
He’s trying to work things out with settlements and a debt-reduction program.
”It’s almost to the point now where even if they finished (road construction) tomorrow, there’s not enough people downtown,” Carson said. “If things don’t change in the next six months, I doubt I’m going to be around.”
Lenders Witness the Problems Too
At Suncoast Schools Federal Credit Union, the amount of delinquent credit card debt has almost quintupled in about three years, from $3.7 million near the height of the real estate boom in March 2006 to $17.1 million in June 2009, the most recent month with data available.
Credit card debt is usually a major factor in bankruptcies as well, and the monthly number filed in Southwest Florida has gone from 24 in January 2006 to 723 in August 2009: up more than 30-fold.
Suncoast president Tim Montoya said like most lenders, he’s had to set tougher limits on customers’ credit cards.
”It’s not that you’re being so strict nobody qualifies, but we have an entire department working with people on forbearances and workouts and extensions,” he said. “More than we ever conceived of doing in the past.”
As cash-strapped budgets meet lower credit limits, increasingly the result is that a consumer simply maxes out a credit card and stops paying.
Locally, consumers in trouble with credit cards or other debts are being directed to private, nonprofit agencies for assistance, including Consumer Credit Counseling Service of the Florida Gulf Coast at 278-3121 and Christian Financial Counseling at 337-2122.
Check out the national impact.
Check out this USA Today article “Middle class barely treads water” even more details about the plastic plague.
Multimedia ideas: Video testimoies of lenders, video testimonies of people in debt, graphs of statistics, a poll asking people what type of credit card debt they are in.
