In case you didn’t know, there is another bubble, which is getting bigger and bigger in this country, getting ready to burst. Revolving consumer credit card debt continued to grow each month, finally breaking the $900 billion mark for the first time last June. The Federal Reserve reports that this year, Americans have racked up $39 billion in new credit card debt. We call the looming crisis the credit card tsunami. You better bat down the hatch!
For the month of August 2007, United States consumers added $6.2 billion in new debt, more than the $5.6 billion they accumulated in July. In total, including everything except mortgages, Americans are in debt for almost $2.5 trillion! Now that the mortgage game is over, and all that easy money has been made, the next big thing banks will turn to for maximum growth and profits are cards. Fees and penalties have risen steadily over the years, as have average interest rates. Last year, banks earned more than $100 billion in interest and more than $50 billion in fees and penalties; These people are not your friends.
Many people, crushed by the bursting of the housing bubble, are increasingly relying on their charge cards to survive. Because money for home equity has dried up, and their lifestyle isn’t changing, or circumstances like lost jobs or medical difficulties require them to continue to rely on charge cards, there’s no end to That’s how much additional debt John Q takes on. The public will take care. At some point, the dam is going to break, and a lot of people are going to drown.
Who knows how many people lived beyond their means during the last few years, taking out temporary money in their real estate, only to spend it on luxuries like vacations and lavish weddings in Tuscany? How many people have moved unsecured, charged up card debt into their real estate, only to put it at risk for foreclosure if they miss a few payments? What about those who thought their already overpriced home values would continue to rise, and took out a teaser rate mortgage in the hopes of refinancing with a profit in a few years, and are now stuck with a mortgage? Which has doubled, and no way to pay for it?
Now that the game is over, they are turning to their charge cards to survive. People who “leaned” into teaser rate mortgages now find themselves unable to make the “real” mortgage payments. Many are defaulting on mortgages, and keeping current on credit cards. Some are using them like ATMs, maxing them out to their limits, while simultaneously applying constantly for the barrage of new cards that grace their mailboxes.
If they think that missing mortgage payments won’t hurt their credit, they’re living in a fantasy land. Give it a month or three, and when the credit cards see you’re missing mortgage payments, they raise your interest rates to 25%+ and then you say “bad” my French. Most of your payment will be wasted on interest, and the loan can take 10-100 years to pay off.
Card companies know that people will do anything to stay current on cards, and people need cash. Requirements to get a credit card are lowest in 10 years, according to Fed survey; If you have a pulse, you can get a credit card. They even give credit cards to people’s pets.
The junk mail credit card requests that grace your mailbox are transported to the post office in semi-trucks on pallets, and they are unloaded by forklifts. While mailers are actually fewer than those mailed at their peak in 2005, the percentage of people who respond and are accepted by credit card companies has grown rapidly and has actually tripled since 2005. !
All of this results in closing in on taking equity out of your overpriced home. It was never sustainable, and I feel sorry for the people who bought at the peak, paying over $600,000 for a 40 year old home that wasn’t worth 1/4 of that price. To think that the bubble could get bigger and the average price of a home exceed the average person’s ability to buy one, it was only a matter of time before something had to give, and it did.
Now, I talk to people all day who are taking credit card cash advances to survive, or to pay off their mortgage; which will end at some point.
The credit card bubble will be the next bubble to burst. If your credit card debt is out of control, you need to do something. Through the process of debt settlement, there are ways to settle with creditors for less than what you owe within 3-4 years, leaving you in a position to get fresh credit after it clears. Read our free report on debt settlement to see if this is an option for you.