Americans' debt soaring

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Americans' debt soaring

June 18, 2001

BY DAVE NEWBART STAFF REPORTER

We are a nation in debt.

As the economy slows following a boom in available credit, the statistics are piling up like a stack of unpaid bills:

* The second-highest number of personal bankruptcies ever filed.

* Near-record levels of debt as compared with disposable income.

* The lowest rate of savings since 1933.

* Average credit card bills increasing nearly 270 percent since 1990.

* The rate of delinquent bills and mortgages at their highest levels in nearly a decade.

"There is a growing tightening of people's finances," said John Ward, president of First American Bank in Elk Grove Village and chairman of the Consumer Bankers Association, which represents most of the major banks in the country. "People have leveraged themselves up."

The thriving economy of the 1990s led banks to offer credit cards to more and more people and offer larger home loans with smaller down payments, Ward said. But with major companies laying off, cutting overtime pay and reducing wages in general, consumers are having difficulty making ends meet.

"It's a major concern for the industry and a major concern for the economy," he said.

With 18,651 bankruptcy filings through March, Illinois ranked fourth among states for the first three months of this year. The total is a 16 percent increase over the same period last year.

Some of that increase could be caused by a quirk in the law. Experts say that in addition to the poor economy, in which countless dot-com firms went belly up, some bankruptcies filed this year might have come as lawyers rushed to file before a bankruptcy reform law takes effect.

The law, which was approved by the U.S. House and Senate but has yet to go before a joint conference committee, will make it harder to wipe out debts completely.

That law will be bad news for the increasing number of Americans who find themselves wallowing in credit card debt.

Jerome Lamet, founder of the Chicago-based Lawyers United for Debt Relief, said he has signed on 1,100 new clients from across the country in the last four months--a 50 percent increase over similar periods in the past. Lamet said many of those are middle-class citizens who had a change in their financial status and then couldn't keep up with high-interest accounts.

"The credit card has caused a very serious problem in this country," he said. "No one is saving anything. They are living on credit cards."

Lamet tells of a student who charged his college tuition and ended up $270,000 in debt.

"How could a kid with no income get that line of credit?" he asked.

But there also was a woman who called Lamet's office recently sounding suicidal because she owed more than $60,000.

Ward acknowledged that when it comes to credit cards, "there were excesses by offerers and borrowers."

Chris Elizondo, 38, an office manager from Chicago, said she and her husband have more than $30,000 in debts on a dozen credit cards.

"They send you the preapproved ones in the mail," Elizondo reflected. "You are doing OK, so you take them. You use them because they have them."

Although she has had several credit cards for years, her family's debts began to spiral out of control when Elizondo's husband lost his job in January. He was forced to take a lower-paying position, and their health insurance premium jumped from $100 to $500 a month. But following a death in the family and a medical emergency, they couldn't keep up with the minimum card payments.

The family is in the process of setting up a payment plan through Debt Free Inc. in Chicago, which does credit counseling. They will avoid bankruptcy, Elizondo said.

"The calls are climbing," Debt Free CEO Cyndi Reed said. "More and more people are at the crisis point."

Jody Robinson, 29, is $17,000 in debt. He recently moved to Chicago from Arkansas, where he was laid off from a job installing high-speed Internet connections.

"It was kind of a false dream," he said of the tech boom, when he bought a new car and wasn't too worried about his finances. "But a lot of things were based on money that wasn't there. It's back to reality."

Neither Elizondo nor Robinson has a mortgage to pay, but people are falling behind on those payments, as well.

The Federal Housing Authority, which makes higher-risk home loans, reported that its delinquency rate had hit a record level, 10.46 percent, at the end of last year. It has dropped slightly since then.

The Mortgage Bankers Association of America, which tracks 30 million residential loans, said the delinquency rate hit 4.54 percent in the fourth quarter of 2000, in part because of high energy costs. But that rate dipped slightly to 4.37 percent during the first three months of this year.

"We see some leveling off," said association economist Douglas Duncan.

***

THE NUMBERS ON DEBT

* The second-highest number of personal bankruptcies on record--356,836--were filed during the first three months of this year, according to the American Bankruptcy Institute.

* The average amount of debt per household has reached 14.29 percent of disposable income, the second-highest rate ever, according to the Federal Reserve.

* The Federal Reserve also reports that the personal savings rate nationwide reached a negative level last year--meaning we spent more than we earned--for the first time since 1933; it remained at negative 0.7 percent in April.

* The average credit card debt per household hit $8,123 in 2000, nearly three times the average amount owed 10 years ago, according to CardWeb.com, which tracks the credit card industry. We owe $568 billion to credit card companies, up from $172 billion in 1990.

* The percentage of credit card loans considered delinquent--past due for 30 days or more--as well as the number of Americans behind on mortgage payments at the end of last year hit their highest levels since 1992, according to the Federal Reserve and the Mortgage Bankers Association.

-- (M@rket.trends), June 19, 2001

Answers

Consumers swimming in record levels of debt. This is the kind of thing that kills economic growth dead in its tracks.

-- Little Nipper (canis@minor.net), June 19, 2001.

Yep, it sucks, but what's the answer - legislating how much credit can be carried by a consumer? Nah, people love their ability to buy on the fly too much. Legislating who the credit card companies can solicit to? Once again, the consumers expectations are that they "should" be able to get credit on demand - it's almost become something of a 'right', students would scream, universities would scream, lots of others too. What people basically want is interest- free credit legislated. Toooooooooooo bad.

People need to grow up and quit spending money like children.

-- libs are idiots (moreinterpretation@ugly.com), June 19, 2001.


"

Yep, it sucks, but what's the answer - legislating how much credit can be carried by a consumer?"

The way the system is set up, the banks are the keepers of the keys to credit. The way the theory works is that such institutions will pursue their interests by not lending to bad credit risks. The way the market works is the banks charge such outrageously high interest rates on credit cards that they are jubilantly happy to lend to good risks, bad risks and pets.

Perversely, if banks were limited in the interest they could charge on credit cards, it would probably force them to take better account of the risks. As if that would ever happen (snort!).

-- Little Nipper (canis@minor.net), June 19, 2001.


"The way the system is set up, the banks are the keepers of the keys to credit. The way the theory works is that such institutions will pursue their interests by not lending to bad credit risks. The way the market works is the banks charge such outrageously high interest rates on credit cards that they are jubilantly happy to lend to good risks, bad risks and pets."

The liberal blame mantra is really tiresome - "there is always someone else who's to blame for anyone's failings, stupidity, or criminality". The fact is that the interest rate should not be a 'surprise' to the idiot who spends money like it's growing on trees. It's about time we quit bending over backwards to protect people from their own stupidity.

-- libs are idiots (moreinterpretation@ugly.com), June 20, 2001.


What needs to be done is to get rid of these jokers who stole the election and think entrepreneurship a dirty word if it involves anyone beyond their golfin buddies.

Wall Street sees very little in the future to get "excited" about.

Who would find anything encouraging when you have an administration who thinks the best way to expand Broadband is to allow the Baby Bells still further market control, for example? Some will salivate, but most won't and thus the downturn.

Just this week Intel chairman Andy Grove said it is time we bend-over to the Monopoly. Easy for him to say, as Intel is yet another monopoly--NOW.

Want to know why the DotComs busted? The bandwidth never showed. Was not for lack of demand or innovation, it was due to monopolistic control and a government lacking the balls to change this. With Bush in the WH, ANY hope this will change left in January.

-- (bush@twofaced.scum), June 20, 2001.



DSL to the residence (the "bandwidth" you are referring to) did not die because AT&T or Worldcomm (or any other "monopoly" requiring massive governmental intrusion - as you would have it) crushed it, but because the startups rolling it out had no business plans that made sense. People would pay $30/month for a DSL line, but no $60/month where the providers would make money.

The government cannot regulate a service into existence.

-- libs are idiots (moreinterpretation@ugly.com), June 20, 2001.


Sorry I do not believe in shortages and the lack of human spirit.

Go do some research and stop your need to be helpless and a dickhead.

-- (bush@twofaced.scum), June 20, 2001.


http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=005XIR

Greenspan says economy has produced more bad loans

-- (M@rket.trends), June 20, 2001.


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