American Families Living in a House of Cards
:From ooBdoo The Free Information Database
Experts say that rising credit card debt is an ominous trend that threatens the very foundation of American households. Building a house of cards is a pastime involving stacking playing cards on top of each other, which is risky, since they might fall over with the slightest movement. The average American family budget is teetering on disaster.
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According to the Federal Reserve
According to the Federal Reserve, the amount of consumer credit outstanding led by brisk growth in credit card use, more than doubled in the first six months of the year. According to Experian Consumer Direct, a company that compiles credit reports and scores, over the past two years, consumers increased their non-mortgage debt by 12.5 percent, reaching an average of $11,669 early this year. The total credit card debt alone stands at $735 billion, with the household card debt of those who carry balances estimated to average $12,000.Credit card companies are notorious for keeping consumers in debt. Their interest rates are among the most expensive forms of credit around and card lenders have shortened the interest-free grace periods and imposed fines of $40 to $50 each for late payments and charges that exceed the credit limit. Meanwhile the average number of late payments rose a staggering 19 percent indicating that Americans are having increasing difficulty managing their greater debt load.
What causes a family to fall into the pit of unmanageable debt? Sometimes there's one dramatic event that upends a household's finances-a job loss, divorce, death of the family's primary wage earner or a serious illness that burdens a family with high medical bills. But often these are the final blows to a budget that was teetering on the edge. Dr. James Gascoyne, who serves as Director of Rainbow Debt Relief Services and www.rainbowcactus.net , states “Consumers look at credit cards as a convenience and as a way to extend their purchasing power. Commonly people use it to purchase things that are too expensive to buy with cash on hand. Debt allows people to do things that they otherwise wouldn't be able or allowed to.” According to experts, the fastest-growing group of indebted consumers are those 65 and older, as more and more people retire, or attempt to retire, relying on grossly inadequate Social Security payments as their only source of retirement income.This increased use of credit cards may be due to several factors, including the perception that credit card use is safer than cash, the convenience of using a credit card is a great plus and shopping online necessitates credit card use. Also, Americans are coming from a higher baseline in which they now consider more things necessities rather than luxuries. In other words, we need and want more. So whether we are ready to pay up front or not, consumers surprisingly are using their credit cards and not forgoing spending as they've done in the past.
Is Bancruptcy the Answer?
Is bankruptcy the answer? Not so fast. New federal laws went into effect in October 2005 that made filing for bankruptcy more expensive, and less lenient, for troubled borrowers. According to the American Bankruptcy Institute, a trade group, applications surged in anticipation of the new law and plummeted afterward, reaching a 20-year low early this year, however, the Institute also noted that filings are on the rise again.
There are Alternatives
”There are alternatives” states Dr.Gascoyne but cautions, “Look before you leap. Educate yourself. Empower yourself with the knowledge necessary to take back control of your family’s finances. Use caution when considering companies promising to help you wipe out credit card debts. Often they're pitching a home-equity loan that you would use to pay off the credit card debt, which carries an annual interest rate of around 20 percent, with tax-deductible home-equity debt at close to the prime rate, recently around 8.25 percent. That’s dangerous. You're putting your home at risk to pay off what had been unsecured credit card debt. If you fall behind on the home-equity loan, you could lose your home to foreclosure. Take the time to do research on sites like www.rainbowcactus.net and www.rainbowdebtrelief.com which attempts to educate consumers on the alternatives and provides valuable information at the consumer’s fingertips allowing them to make a decision that fits their situation and needs.” The best advice to consumers is once they are back in control and on a firm foundation, reduce credit card spending and stick to a firm budget.
External links
Dr. James Gascoyne is a senior agent with North American Educational Services and counsels families with unsecured debt like credit card debt. He can be reached at JG@naes.cc , 623-242-6209 or at www.rainbowcactus.net