Credit-Card Pinch?

We wrote back in October 2007 that Credit Card may be the next ticking timebomb.  Credit-card delinquencies are rising.  And that has led banks to tighten credit. 

 

The december increase in seasonally adjusted revolving credit was only 2.7% compared to 13.7% in November and 11.1% in October.  The article in WSJ confirms a similar article in NYT that talked about "involuntary thrift."  Where the consumers are forced into "Pay as You Go" Strategies. 

 

It's not a bad thing to live with in your means.

 

In past economic downturns, Americans used credit cards mainly for discretionary purchases, such as furniture, appliances and jewelry. Now, however, many of them regularly whip out plastic to pay for groceries, gasoline and other everyday necessities. Credit-card issuers won't disclose exact figures, but they say it is evident that a growing percentage of card volume is for basic purchases. Many issuers even dole out extra rewards for such transactions.

Card delinquencies are ticking up from historically low levels, but the trend is sending shudders through lenders already reeling from the subprime-mortgage tumult. As a result, leery card issuers are bulking up their reserves against future card-related losses -- and getting so much tougher on borrowers that some consumer are reining in overall spending.

After J.P. Morgan doubled the interest rate on her credit card to around 30% and lowered her credit limit in December, Jennifer Campion, a 39-year-old computer-software instructor in Chandler, Ariz., decided to eat out less often and to forgo her daily coffee at Starbucks so she can pay off her outstanding card balances. "Our whole lifestyle has changed at this point because of this strict budget we're on," says Ms. Campion, who has a total of about $7,000 in credit-card debt.

Indeed, many Americans are so dependent on their credit cards for basic needs that about 25% of the clients walking into Margo Mitchell's credit-counseling office in Tulsa, Okla., have opted to pay their monthly credit-cards bills before their mortgages. "The credit card is a means for them to supplement their income and becomes a cushion to buy groceries," she says.