STATEMENT: Problems with Plastic – Credit Card Debt Hits Record High
Washington, D.C. – Amid the worsening U.S. housing crisis, lenders are tightening their mortgage standards, leaving only the most creditworthy borrowers able to take out new mortgages and tap new home equity lines of credit. That means more and more Americans are racking up record levels of credit card debt to make ends meet—tapping expensive and potentially explosive debt that lenders continue to offer.
Data released last week by the Federal Reserve shows that Americans’ total credit card debt has reached $951.7 billion—up 8.2 percent from a year ago and the highest amount ever recorded. This is not good news amid an economic downturn given the already brisk accumulation of credit card debt by consumers over the past six years. As detailed in the recent Center for American Progress report “House of Cards,” between April 2006 and December 2007, inflation-adjusted credit card debt accelerated at a rate four times faster than between March 2001, when the last business cycle ended, and April 2006. This increase compensated for a substantial part of the slowdown in mortgages.
This increase in debt is no surprise. With the costs of almost all basic expenses on the rise, everyday Americans are pushed against a wall. During the housing boom, Americans who owned their homes could cope with these rapid increases in the cost of living by cashing in on rising home prices. But as the subprime crisis slowly unfolded over the past year, lenders have tightened mortgage standards.
Yet credit cards continue to be pushed by lenders. Some estimate that over 6 billion mailings are sent by credit card issuers to U.S. households every year. Because credit cards have higher borrowing costs than other forms of debt due in part to high fees, many borrowers fall deep into debt.
READ THE FULL REPORT: http://americanprogress.org/issues/2008/04/plastic_problems.html