Consumer Debt

It all started more than 20 years ago with Santa Claus -- Santa Claus and the Sears Wishbook and a mother's desire to wrap her children in Christmas gifts.This month it ended with Sherry, 47, sitting in a counselor's office surrounded by credit-card bills and telephone bills and insurance statements and paycheck records that all pointed to one indisputable fact -- Sherry and her husband couldn't pay their bills.By the time Sherry arrived at the Consumer Credit Counseling Service of Maryland's Catonsville headquarters, she and her husband owed $12,000 in consumer debt -- a third of their $36,000 annual income.

IF ONE OF the largest banks in the country has its way, you as a homeowner won't have credit-card balances at high interest rates to worry about in the coming decade.That's because your house will function as your ultimate piece of plastic. In the words of Wells Fargo & Co. Senior Vice President Colin Walsh, "home equity will become the credit card" of the future, thanks to a new wave of high-tech "credit balance transfer" programs heading your way.With virtually no fanfare, Wells Fargo has begun contacting its $14 billion home equity loan customer base and offering homeowners the opportunity to convert electronically all of their outstanding credit-card balances to their equity account -- up to 100 percent of the market value of their homes.

YESTERDAY was the official start of the Overconsumption Olympics. We fly off the starting blocks in November by eating more than we need and race to the finish in December by buying more than we can afford for people who already have more than they can use. We're awarded gold medals in January in the form of credit card bills and trips to commercial weight-loss centers.Enough alreadyIt's no surprise that we've lost the ability to say ''enough.'' This seems especially true during the holidays.

From credit card late payments to mortgage delinquencies to personal bankruptcies, American consumers seem stretched to the max, raising a yellow flag for the economy.While the overall economy has been humming along with low inflation, a number of signs have emerged lately that consumers, who account for two-thirds of economic activity, are under stress.Credit card late payments jumped in the first quarter to 3.53 percent from 3.18 percent a year earlier, reaching the highest level since April 1981.

Ballooning credit card debt among American consumers is stoking demand for a new -- and potentially risky -- home mortgage product: a loan that allows you to borrow up to 125 percent of what it's worth.Lenders across the country are scrambling to offer what some industry analysts believe will be the hottest mortgage concept of 1997.Wall Street mortgage market analyst Jonathan Lieberman, a senior researcher for Moody's Investor Services, predicts that lenders will make more than $7 billion worth of no-equity and negative-equity home mortgages in 1997, up from just $200 million in 1995 and $3 billion in 1996.

Economists increasingly agree that the Federal Reserve has at last pulled off an elusive "soft landing," wringing inflation out of the economy without driving it into recession. Can this condition of no inflation and no recession be sustained? What forces will work for and against the Fed as it seeks to maintain the delicate balance? Will the Fed cut interest rates again?Dennis A. StarliperManaging director and treasurer, Provident BankCertainly the inflation numbers continue to come in under the markets' expectations.

Crude oil prices fall sharplyCrude oil prices fell sharply yesterday on word that a jailed Nigerian politician would soon be freed.But the politician, Moshood K.O. Abiola, rejected the conditions of his release, clouding prospects for ending a month-old oil workers strike in Nigeria, the world's 10th-largest oil producer.Light sweet crude oil for September delivery settled at $19.31 a barrel, down 83 cents at the New York Mercantile Exchange.Oil workers in Nigeria went on strike July 4 to protest the imprisonment of Mr. Abiola, the apparent winner of a 1993 presidential election that was annulled by the military government.

NEW YORK -- Ever since the collapse of high inflation, consumers have known that it no longer pays to go into debt. There's no pressure to buy before prices go up. And your wages might not rise enough to reduce the pressure of high monthly payments. If you're on your company's layoff list, high debt endangers the very security that you've been working toward.But like any other addiction, a debt habit seems difficult to give up.During past recessions, safety-minded consumers have hastened to lower their borrowings.

NEW YORK -- When Mike Gisriel decided to buy a new car fo his frequent commutes from Baltimore to Annapolis, he came up with some creative financing. Instead of taking out a car loan with an interest rate of about 12 percent, he got a $25,000 home equity loan at just 7.5 percent.That saves him more than $100 a month in interest payments. And the payments are tax-deductible, just like a regular mortgage."If you need cash right now and you're an average middle-class )) guy, home equity loans are the best deals around," the 42-year-old lawyer said.

Sooner or later, nearly everyone will experience a short-term money crunch.For some people, however, the problem is chronic: There is never enough cash to cover immediate needs, and saving or investing is impossible.The solution: Earn more income or slash household expenses. For most people, the latter choice is easier.In a typical American household, about 75 percent of after-tax income goes to cover basics, such as food, housing,transportation, clothing and health care. The remaining 25 percent is spent on consumer debt, entertainment and savings.

WASHINGTON - The American consumer's long-running love affair with debt appears to be on the rocks. But like a lot of soured romances, the reasons are a bit murky. What's known is that the debt held by U.S. households shrank in the three months ended Sept. 30. That's the first time that has happened since the government began keeping records more than 50 years ago, the Federal Reserve said yesterday. Economists say consumers appear to be curbing their spending and displaying a healthier prudence about taking on new debt.

If the Federal Reserve's recent cut in interest rates makes it less expensive and easier for people to obtain loans, it would be bad news for Yusupha Touray. By his estimate, the 27-year-old Long Beach, Calif., resident owes about $93,000 in credit-card, phone, utility and hospital bills. "When my bills come, I know I don't have any money to pay them," he said. "So I don't bother anymore." Nevertheless, Touray said he receives pitches from credit-card issuers in the mail almost every day. If those pitches become a smidge more attractive because of lower interest rates, he said he just might be tempted to go even deeper in the hole.

Carole Kelley got a letter out of the blue last year saying she owed nearly $1,200 on an unpaid credit-card bill. But Kelley says she never had plastic from the card issuer listed. No such debt had appeared on her credit report when she bought a house three years earlier. Her credit monitoring service had never turned up the debt. And the letter didn't use her current married name. "So I called, and they told me I owed it. I said, `I don't understand this. What is this from? I can't even tell exactly where it began,'" says Kelley, a paralegal with a Westminster law firm.

Barbs at Bush miss the causes of nation's woes The Sun's editorial "Two Americas" (Jan. 22) reads like something straight out of the Democratic National Committee's playbook. But let's go through some of the jabs on the issues raised in this piece. Jobs: Yes, 2.4 million jobs have been "lost" during President Bush's term. The collapse of the high-tech bubble and the overall recession, both of which began before the president took office, the very costly hit the economy took from the Sept.

HAVING HEARD President Bush's State of the Union speech and observed Iowa's kickoff of the Democrats' primaries, it's now appropriate to ponder the latest version of an age-old political question: Are you better off than you were three years ago when Mr. Bush took office? The answer is yes if you won the recession lottery - by managing to keep your job, reasonably improve your salary, maintain your health insurance, benefit from the housing-price bubble, see your investments recover, and not add to your consumer debt.

After three years of slow job growth, with 9 million unemployed Americans still looking for work, you might expect this holiday season to be a bit subdued. Instead, consumers are poised to strip the stores bare and add to record levels of debt, encouraged by a booming stock market and promising economic indicators. "They're spending more because they feel good," said Gary Levin, a partner at Deloitte in Chicago. "The significant majority will be using credit cards." The consulting firm, in a survey of 17,035 consumers, found that 67 percent expect to spend more or the same as last year.

AmeriDebt, the debt counseling service being sued by two states, said yesterday that it will stop enrolling clients and focus on its 92,000 customers because "negative publicity" has compromised its ability to serve new clients. The Germantown nonprofit, which spent millions of dollars annually on advertising to attract new clients, said it would stop signing up new customers beginning Nov. 1 and suspend its ads on television, radio and the Internet. It generally takes several years for consumers to go through a debt-management plan such as those offered by AmeriDebt and other nonprofits, and the group hasn't decided whether to close shop when all of its clients finish the program or resume enrolling consumers later, said AmeriDebt lawyer Zynda Sellers.

Stocks soared again yesterday, building on four weeks of gains, thanks to strong earnings reports from a key retailer and increased investor confidence that the U.S. economy is rebounding and corporate accounting scandals are a thing of the past. "You've got a decent economy, low interest rates, no inflation, a neutral Fed and [a belief that] most corporations are showing legitimate earnings growth through the end of this year," said David L. Berman, head of Berman Financial Group LLC in Timonium.

THE economy has stalled, so it must be time again to worry about consumer debt. We in the financial analysis/commentary business have done this so often over the years that many of you have probably memorized the lines. But as a courtesy to those new to this scary movie, I'll reprise the plot and update it for a 2002 audience. Recently, Americans have gone on a borrowing and spending binge like never before. (You could have said this in 1966, 1986 or 1996 and it would also have been true.

Americans are looking close to home to ease the mountain of consumer debt they've racked up over the past decade. In fact, homeowners are treating their residences like piggy banks, turning them upside down and shaking out some of the equity locked inside. With home values on the rise and interest rates on home-equity lines of credit tied to a low prime rate, more consumers are using their houses as a way to pay off credit card debt, undertake home improvements, send children to college or buy big-ticket items.