Breaking the Credit Habit: Not as Impossible As They Said it Would Be

Did the economic toil of 2008 push cash-strapped consumers to wildly apply for credit cards and default on their existing debt? Not remotely, according to a bit of research:

1. National credit card debt per credit borrower in the US was $1,717 in the second quarter of 2008 - up 2.63 percent from the first quarter of the year 8.6 percent from the second quarter of 2007. [Source: TransUnion.]
   
   

   But the delinquency rate* - contrary to what you might expect - actually declined from the first quarter to the second quarter this year. This shows that issues of credit default may be localized and tied to the mortgage industry.

2. Early third quarter activity (June '08) showed a decline in the number of credit card applications. [Source: NetBanker.]
   
   

   The number of people "shopping" for credit cards dropped by 2% over the prior month - okay, we'll take it. But check this out: that number (about 12.2 million consumers) represents a whopping 39% drop from the same period last year. From the same report, we can see that deposit activity is up and people seem to be more interested in saving. That's great news.

So, who said we are all credit mongers? It seems when it comes to tightening the proverbial belt, we're not hopeless.

*Delinquency incidence rate is the ratio of borrowers that are 90 or more days past due on their payment. The rate in the second quarter of this year was 1.04 percent, which is a 12.6 percent decline from the first quarter, but still higher than the 0.91 percent rate in the second quarter of 2007.

Comments

[Sundialsvc4]

I've got a few friendly suggestions on that ...

(1) Bankers play games with their payment-posting... depositing payments "magically one day late" to grab thousands of dollars in fees. They take full advantage of batch-timing to process debits and credits in a way that is most favorable to the bank... in other words, to grab the most fees.

(2) Interest rates being charged are ... Usury. In days of yore, you'd get your hand cut-off for that as though you were a common thief. As, in fact, you were.

(3) Loans were issued willy-nilly specifically in order to create "securities" that could be sold at a profit. The result? Bankruptcy. But not for bankers. As long as they can find a way to keep from holding the bag, "problem solved."

Credit is a legitimate business. But this isn't business, Ike. It's high crime. And it's high time, I think, that we start calling it that, and pursue it on that basis.

"High crime" is real crime. And it isn't "victimless crime." Quite the opposite. Any officer, director, judge or CEO/Vice-CEO of the United States Government who intentionally uses his or her power to further a criminal activity ... victimizes hundreds of millions of people. Real people.

[KillTheMessenger]

I can only speak for myself but I have a habit of keeping my personal savings rate around 50%. So if the personal savings rate of Americans on average is close to zero, that means there must be dozens of people out there who are deep in the red, just to make up for this one conservative liberal.

[JBS]

How are you defining "personal savings rate"? Money you're putting away from each paycheck (current income) or what you've already accumulated.

If you're putting 50% of your current income into a bank account, you're getting screwed big time.

Even the high dollar, high rate CDs pay barely more than keeping up with the CPI-U, and that's somewhere 3% - 7% LESS than the actual rise in the cost of living.

And recently, even the high dollar CDs don't keep up with the CPI-U.

So, it's really no wonder most Americans don't save. There's no way to improve your financial position by doing so.

Unless you're one of those Wall Street insiders?

[KillTheMessenger]

"How are you defining "personal savings rate"?"

After tax money I put away for down payments on homes, to buy a car with cash, to go on a vacation etc.. It does not include my social security payments and my maxed out 401k.

" If you're putting 50% of your current income into a bank account, "

Not after risk adjustment. Just because Warren Buffet knows how to make money in the market at these times does NOT mean that I know how to make money in the market. If I were to put my money into stocks right now, or any other type of uninsured investment, I would lose way more than I could hope to gain. None of the people I know personally who are still in the market have been able to keep their portfolios even balanced. QED.

"So, it's really no wonder most Americans don't save."

No, it's not. They don't save because they do not know how to risk adjust the value of their "investments". On tv they only show the people who were lucky with an all-in strategy. If they were to show the ones that weren't... you get the picture.

"There's no way to improve your financial position "

Looks like you are one of those who don't know how to risk adjust, either... or... you are one of those Wall Street insiders who know how to beat the market.

:-)