More U.S. Consumers in the Red at Year's End
Americans are spending above their means and relying on their credit cards to absorb the debt, according to a study by the Associated Press. Three out of four households have credit cards, the AP says, with an average debt of $5,000.
AP reporter Bob Porterfield says that October 2007 saw a 26 percent rise in the number of credit card holders making payments at least 30 days late.
"A lot of the people that were out charging on Black Friday this year," Porterfield told NPR's Robert Siegel, "are still paying off credit card balances from gifts they bought last Christmas."
Porterfield co-wrote the article "Credit Card Crunch" with reporter Rachel Konrad after compiling statistics and reviewing spending patterns. He says defaults and delinquencies are surging by double-digit percentages and prompting warnings of worse to come.
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ROBERT SIEGEL, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.
And now, Americans and credit card debt. An investigation by the Associated Press finds that more and more of us are in a hole. A little context here. According to the Federal Reserve, three out of four households have credit cards. The average household carries balances of over $5,000. And all told, we owe something like $900 billion to the credit card companies. So how are we doing at paying off that debt?
Well, that's the question that Associated Press reporter Bob Porterfield set out to answer along with reporter Rachel Konrad. And Bob Porterfield, you found that we're not doing so well?
Mr. BOB PORTERFIELD (Reporter, Associated Press): That's correct. The number of Americans who are unable or, for some reason, are late on their monthly credit card payments is creeping up noticeably in some cases.
SIEGEL: You found that among credit cards that are at least 30 days late, your figure is that that number jumped 26 percent in October from a year earlier at least at some places that you're able to sample?
Mr. PORTERFIELD: Yes. When you look at other specific categories like credit card payments that were three months late, you saw the increases were more noticeable. When we broke these numbers out, we basically focused on 60, 30 to 60 days late in making their payments and 60 to 90 days. We also looked at the default rate. And many of these credit card issuers are seeing increases in default rates, some in the double digits, but they're all increasing slowly but surely.
SIEGEL: Now, you contacted one Wall Street investor whom we called up as well. He's with Credit Suisse. And he says at least from the investing side, they're not at all troubled by this. Investors are nervous about any kind of securitized debt because of the sense of the economy today. But for investors, the problems with credit cards, not a big deal for them.
Mr. PORTERFIELD: Yes. The investment community looks at the amount of receivables that are outstanding. And they compare that and they calculate the percentages in the various categories of delinquency. So if you have $8 billion in receivables outstanding and you only just wrote off $160 million, they don't seem to care about that because they're plenty, you know, there's plenty of money left to collect.
SIEGEL: I assume - now, we all assume that the Christmas shopping season right about now would be a time when - if we had a curve for the entire year, there'd be a bump here in what people are putting on their credit cards.
Mr. PORTERFIELD: Yes, I think so. And I think you may see that in January and/or February, you know, depending on the credit card cycle. But again, as one credit counselor pointed out to us, a lot of what people that were out charging on Black Friday this year are still paying off credit card balances from gifts they bought last Christmas.
So it becomes sort of a vicious circle. And you know, only time will tell. I mean, in California - been hard hit in the mortgage crisis. You see families that are in $600,000 homes that they can't really afford. They have a couple of SUVs in the driveway that they can't really afford. And they're using credit cards for everyday expenses, you know? The Starbucks latte, groceries. And sooner or later, that bill, you know, is going to come due.
SIEGEL: Just one other point here. Someone who's in debt and having trouble with a mortgage and auto loan, a boat loan for that matter, and a credit card, at least in the case of the mortgage, he may not like it but the loan is secured by the house whatever (unintelligible) over.
Mr. PORTERFIELD: Correct.
SIEGEL: The auto loan is secured by the automobile or the boat equally. Some repo man may come and take your vehicle from you.
Mr. PORTERFIELD: Right.
SIEGEL: But the credit card is unsecured debt. That's…
Mr. PORTERFIELD: Correct.
SIEGEL: It's a different kind of debt you hold.
Mr. PORTERFIELD: We found no evidence that any of the securities backed by this unsecured credit card debt have yet defaulted. You know, there seems to be an attitude on Wall Street that, well, it isn't a problem. What happens down the road if you have delinquencies increase, then you may have a problem.
SIEGEL: Well, Bob Porterfield of the Associated Press, thank you very much for talking with us.
Mr. PORTERFIELD: Sure thing. Thank you. Transcript provided by NPR, Copyright National Public Radio.
