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Credit Card Debt Bubble

As we have recently witnessed in the mortgage industry, many experts believe a similar bursting of the bubble is soon to take place in the realm of consumer credit. For years, the credit card debt bubble has expanding rapidly as creditors have liberally loaned out money for everything from college tuition to a brand new car. The unrealistic spending habits of America are now catching up to her in the form of unpaid credit card balances and a possible breakdown of the entire credit system.

The Current Situation

Statistics show that the average family owes over one hundred thousands dollars to various lenders, including home and car loans, college and personal loans and credit cards. Of these families, a rising number are unable to make payments on their debts to creditors. The mass consumer non-payment situation is leaving many credit companies in the lurch and with dwindling income and credit card spending at an all time high, the future prospects of lending institutions are much darkened.

As the economy continues forward in a depressed state, many lending institutions are fighting panic. As people continue to lose jobs and homes, their ability to repay credit card debt is in turn diminishing. While crisis may still be averted, there is serious talk of the credit card debt bubble bursting in the near future.

The Result

In response to the pressure that lending institutions are feeling, credit card companies are looking for ways to increase their revenues and minimize risks. Credit limits are being slashed dramatically and many consumers are finding that late payments are no longer penalized solely by a late fee, but also with significantly increased interest rates.

Standards have also been set a good deal higher when it comes to approving credit card applications. In days gone by, creditors were relatively undiscerning when it came to granting credit cards that carried over-generous spending limits. This liberality has bit creditors in the back, as consumers have used their credit cards to purchase merchandise and services that are out of their budget. Having paid out large sums of money in the name of their clients, creditors are now finding many of their customers unable to repay what they owe or even to stay consistent with their monthly minimums.

For many years, creditors and consumers alike have lived in a fantasy bubble of over-lending and over-spending. The predictable end-result is now upon us. Whether the credit card spending bubble bursts or not, our over-extended credit industry needs to make some serious changes if it wishes to be a viable entity in the coming days. Creditors and consumers alike have to set appropriate financial boundaries and stick to them if there is any hope of saving the current credit card industry, as we know it.

April 7, 2009

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