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December 26, 2007 - In part because of the subprime mortgage meltdown, the number of Americans delinquent on their credit cards is on the rise. Many of those who are behind in their payments have used their homes much like an ATM over the past few years. They would run up credit card debt and then take money out of their home to pay it off. This cycle could be repeated over and over again. But with tightened lending standards and lower home prices, a large number of consumers are finding that they can no longer access the equity in their homes... if they have any equity left at all. This is leaving many people with few options.
In a study conducted by Associated Press, in October the overall value for credit card accounts that were delinquent by 30 days jumped 26% when compared with the same period in 2006. That amounts to more than $17 billion in delinquent accounts. Actual defaults on credit cards rose 18% in the same October period. This means that credit card companies had to write-off nearly $1 billion in October alone. As if this news is not bad enough, based on other survey results there is reason to believe that things will get worse before they improve. Of the lenders that responded to the survey, the number of accounts that were delinquent by 90 days or more is up by more than 50% when compared to October of 2006. In the case of Bank of America, the numbers are even more abysmal. B of A reported that delinquencies were up 200% over previous year levels. And Capital One said that it expected to write off $4.9 billion in credit card debt in 2008. The company also reported that 1.2 million of its 30 million credit card accounts are currently in default. This amounts to 4% of the company's total number of credit card accounts. For lenders, the news may foretell a perfect storm. Consumers delinquent on their home mortgages and who are unable to refinance are letting their homes fall into foreclosure in record numbers. Until recently, credit card default rates had held fairly steady and were actually considered a bright spot by the financial industry. Those days may be over. ACCESS is advising its readers to contact their lenders as soon as they think they may be in trouble financially. Because of widespread problems with consumer credit, many lenders are well motivated to work with consumers to avoid problems. This is true for both home mortgages and credit card accounts. by Jim Malmberg Note: When posting a comment, please sign-in first if you want a response. If you are not registered, click here. Registration is easy and free. |
Should I close my Credit Card Account?
Written by InDebt on 2008-01-09 I have a credit card with a huge credit line and I've reached my limit. Each month I pay 500-600 dollars, but it all goes to finance charges and fees. After 3 years I still owe the same amount and some! I have a sub-prime mortg loan that just readjusted in December. My mortg has increased incredibly. I need to find more cash every month while I work on a MOdification with my lender. I'm considering closing the credit card account I have. The bank is willing to work with me on making lower payments at 0% interest so that my payments go to the principal..However, I must close the account and I will never be able to use it again. Is it hurting my FICO score more to remain over my limit on this credit card or will it hurt my FICO more if I just close it and actually begin to pay it down? | RE: Should I close my Credit Card Accoun
Written by jmalmberg on 2008-01-09 If I understand you correctly, you are already over the limit on your card. Is that correct? Also, it sounds like this is the only credit card you have. Is that correct?
Do you have any idea what your credit score looks like?
The reason I'm asking these questions is because if you can refinance your mortgage and pay off your credit card in the process, you may be better off. In order to do this however, you will need to have a good credit score, and probably have at least 20% equity in your home.
If your credit score is already low, and you can't refinance your home, then the best option may be to take the 0% offer. While closing a credit card account will have a negative impact on your credit score, being maxed out on your credit card also hurts you.
If you are able to refinance your home and pay off your credit card debt, then there are a couple of things you need to do. First, don't go from one bad mortgage to another. Get into a mortgage that has you making at least your full interest payment each month and preferably one that has you making a principle payment too. Secondly, look for a mortgage that has a fixed interest rate for a period of time. If you can get a 30 year fixed, that's best but you can also consider 5 and 7 year fixed rates. These may offer more flexible payment terms.
Finally, when you pay your credit card bill from the money you borrow on your home, put the credit card away... don't cancel it, but don't use it again either. This will prevent you from going into mor debt. |
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