Credit Delinquencies Soar

The Associated Press is reporting that credit card delinquencies are soaring—a situation which could even worsen in the months ahead.

The largest spike appears to be in credit card accounts that are more than three months delinquent.

Financial experts across the country say that the subprime loan debacle could be partly to blame for the mess. If the economy falls into recession, the number of credit card accounts in arrears could rise exponentially.

According to the AP, credit card accounts at least a month late rose in value 26%, to $17.3 billion in the fall. The accounts involved such retailers as Wal-Mart and Home Depot. Meanwhile, defaults climbed 18% to nearly $961 million in October. In a default, a lender writes off the debt because he has given up hope of being repaid.

The situation represents a sort of reversal of fortune. That’s because, until recently, default rates on credit cards were quite low. However, for credit card issuers, the business can still be quite financially rewarding, since interest rates can be as much as 36%. In addition, credit card companies make money from late fees and other charges.

Now that the holiday shopping season is coming to an end, the rates of defaults and delinquencies could rise still further. That’s because the real estate market continues to be soft and home sellers are having a tough time getting good prices for their homes. In addition, joblessness is a major concern in the Midwest, South, and portions of the West.

Another troubling trend is the fact that many households carry thousands of dollars in credit card debt. Such debt has become so common that many Americans may fail to view their debt load as a real problem. However, debt can easily sap a household’s economic vitality, leading to severe financial strain.