Overdue Consumer Debt Skyrockets

By: Roshawn Watson

According to the American Banking Association’s quarterly survey, consumers fell behind on their debt at the highest rate since 1992. Across all eight loan categories tracked, payments that are at least 30 days past due increased, reflecting the immense economic stress consumers currently face. Leading the pack was late car loan payments, which make up two-thirds of consumer loans with fixed balances. Consumers over-borrowed because they assumed that home prices would continue to rise.

As the value of homes continues to depreciate, the implications are broadly felt. Banks are taking steps to protect themselves. For example, some banks are now…

• no longer issuing subprime home equity loans
• requiring home buyers put down larger down-payments and prove their incomes
• no longer making new student loans to US students (at least 40 lenders have stopped writing one form of their student loans)

These changes reflect a slowing economy. Note that US consumer spending, employment and homebuilding are expected to deteriorate this year. According to Mastercard CEO Robert Selander, “U.S. consumers are spending more on gasoline and food, crimping spending on luxury items.”

It is sad to witness the effects of debt; however, it is imperative to gain the lesson, which is OPM (other people’s money) does not work for most people. Personally, there is no car, boat, or other toy worth this kind of stress. I hope you share this conviction. Disciplined planning (budgeting) and tracking of expenses may not be glamorous, but they will keep you out of this kind of headache. In short, do not over-extend yourself for that flat-screen; put down the credit card…there will always be another one.