Overdue credit bills rise

Percentage in 2Q is record, but that was before Katrina and Rita


CHICAGO -- The number of consumers falling delinquent on their credit-card bills hit a 32-year record high this spring amid rising gasoline prices and other pressures stretching household budgets.

The American Bankers Association reported yesterday that the seasonally adjusted percentage of credit-card accounts at least 30 days overdue rose during the April-to-June quarter to 4.81 percent, the highest level since the association began collecting this data in 1973. The increase followed a jump in the previous quarter to 4.76 percent, up from 4.20 percent at the end of 2004.

While there were other complicating trends in recent years - rising interest rates, a decline in savings, stagnant salaries and increases in the cost other basic necessities such as the cost of education, housing and health care - gasoline prices made the financial strife more immediate.

Gasoline, now averaging $2.73 a gallon nationwide, is up about 60 percent from the $1.75 at the end of 2004, according to the association. "For people already having difficulty meeting their financial obligations, the extra $500 to $700 a year in gas is a big chunk out of their wallet," said James Chessen, the association's chief economist. "In the second quarter, we're seeing more people in financial stress."

And even consumers with cash to spare say they are adjusting their spending to the new gas reality.

"Something's got to give and that something is entertainment and taking a less costly vacation to save money," said Gene Reineke, chief operating officer for the U.S. division of Hill & Knowlton.

Reineke said he is bracing for a higher heating bill this winter and said his gasoline bill has risen about 30 percent so far this year - a jump that may prompt him to take the train rather than drive to work from his home in Valpariso, Ind. Reineke commutes 100 miles a day to his Chicago office because that's where he was able to find an affordable home large enough for his family of six.

That financial stress among others is evident in the growing stain to pay car and home equity loans. The delinquency rate on automobile loans from car dealerships rose to 2.08 percent, up from 1.87 percent in the first quarter, Chessen said.

Those failing to make a payment on a home equity loan rose to 2.75 percent from 2.61 percent in the first quarter - a number nearly double the 1.38 percent delinquency rate in 2002.

The hardest-hit states, where the delinquency rates on a composite of eight types of fixed-term loans are more than 4 percent, include Alabama, Michigan, West Virginia and Wyoming, Chessen said.

Credit-card delinquencies have been rising for a while.

Since 2002, the credit-card delinquency rate hit 4 percent for the first time since 1990 and has not fallen below 4 percent, according to reports by the bankers association.

The mounting pressure, compounded by stagnant wages and lack of savings, is one reason why the rate of bankruptcy filings has more than quadrupled since 1984, from 291,000 to 1.56 million last year, according to Deborah Thorne, an associate professor of sociology at Ohio University in Athens.

"Many people are living so close to the edge that a slight increase in expenses can cause them to fall behind on their bills," Thorne said.

This quarter, the personal savings rate fell below zero to minus $59 from $404 late in 2004, according to American Bankers Association statistics.

But Thorne said rising costs are a factor, too.

During the past 20 years, the cost of a public college education has risen about 200 percent and, during the past 30 years, the average home mortgage payment is up more than 70 percent, after adjustments for inflation. Meanwhile, about 45 million families are without health insurance, she said.

On credit cards that can have a $30 penalty for a late payment or for an account that is over the limit, $60 in extra charges per month can lead to a financial unraveling, she explained.

Thorne added, "Once someone stumbles and gets behind on credit-card payments, it snowballs."

Susan Diesenhouse writes for the Chicago Tribune.

Fixing your credit

Experts provide these tips for those behind in credit-card payments:

Put away your credit cards for a while.

Get a fix on the problem by going over credit-card statements and other financial statements to analyze where your money is going. Identify areas to trim or cut. If driving eats a big chunk of money, look for ways to consolidate trips or car pool. If more help is needed, consider seeking credit counseling.

Build up savings - no matter how little or how slowly. "A lot of people think `I can't save until I'm past this credit trap.' Save even a small amount. Even if you have to keep raiding your savings to pay bills, you will eventually make progress and that can be very empowering," said Susan Tiffany, director of consumer publishing at the Credit Union National Association.

Do not let financial problems fester. Take steps as soon as possible to get the situation under control before it gets worse and you are buried under a mountain of debt and damage your credit rating.

Pay attention to late fees and rate changes. Daniel Ray, editor-in-chief at Bankrate.com, an online financial service, said late fees are rising to an average of $35 per late payment from $29 a few years ago. Credit-card companies can change the rate on your credit card with as little as 15 days' notice - often in tiny print, he said. Credit-card rates nationwide last week averaged 12.89 percent for fixed-rate cards and 13.31 percent for the more plentiful variable-rate cards.

[Associated Press]

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